There is a way to make sure you don’t ever encounter a surprise expense or major repair item. By incorporating this method, you will have added peace of mind that your property will never require you to fund it out of pocket and reduce the amount of money you are expecting to receive from your storage facility. Bold statement, but true.

Top on the list of the fantastic attributes of self-storage (and there are a lot), is the ability to accuractely project cash flows. I mean very accurately. How? Well, the main reason is because there are so few capital expenses that would effect it. There are no tenant improvements to make when a tenant moves out. There are no commissions to pay to put a new tenant in. No carpet, appliances or other capital improvements that every other real estate asset has to get income going again for rental space.

Now there are capital improvements in self-storage, right? What are they? Blacktopping, HVAC replacement, office remodeling, signs, etc. Here is what I have discovered. I am fairly sure when the HVAC is going to need replacement. I know we blacktop every four years, resurface every ten. I know my deductable on our insurance policies is $10,000.

What if you maintained a separate account that you contributed to each month to hold that money so that when you had a capital expense, it never comes out of the operating account. We allocate $1,000 per month per facility into a capital reserve account for that facility. So far, I have never had to take money out of operations to pay a capital improvement.

Last year we had an expressway exposed large sign (over $60,000) destroyed in a wind event. We and our investors never missed a cent that month or year because replacing it (even upgrading the sign to LED) was completed without a penny from normal operations. Our deductable was paid from the capital reserve account and we did not miss a beat.

Remember, only self-storage has this possibility. This simple practice has allowed me to grow our business exponentially. Investors, when they really get it, feel very safe. As an Owner, or someone getting in the business, or someone growing a portfolio, I highly suggest that each month you set aside money into a capital reserve account so that your normal cash flow is never used to fund capital improvements. Our Performa’s show this each and every month and at least so far, there has always been enough money to handle any surprises and anticipated capital expenses.

But let’s not tell the apartment, office or retail guys about this. And never tell anyone that owns lots of single family homes this secret. If they really understood it, the secret all self-storage people know, getting good deals will become even harder.