Getting into the self storage business can be challenging in today’s world.
Any markets are overbuilt. Prices are high—A lot of people with cheap money buying.
But those are external factors.
I have no control over them.
Yes, I could chase industrial warehousing or something. However, that sector will not have the advantages self storage does, and it has its own cycle. What will I do when there is too much warehousing out there, and rental rates on a 100,000 square foot block of space in my market drops to $2 a foot to keep it rented?
Yes, what is going on in the self storage world is cyclical and external. What can we do?
Well, we do have control over how we react to the market. Not what the market is doing, but what we do, given the market realities.
One strategy is to do nothing.
Wait.
This is valid, safe, and many small investors appear to be doing this.
But what will you do instead?
Stock? Bonds? Apartments?
Again, valid, but not for me.
For small investors getting in or growing their self storage business, what is needed is a good Business Strategy that reflects what is currently going on in the self storage world.
A Good Business Strategy
I have talked about and written about business strategies a lot. But what does a good business strategy really provide you?
Well, not in this order but Who, What, Where, When, and Why?
Who
Yes, we are usually a small team of ourselves mostly, but I have never met a person who has all the skill sets to handle every aspect of getting in and running their self storage business.
We need a team.
Our team can be partners, employees, or vendors.
But you need to assumable your team before you get started based on what your strengths and weaknesses are.
I suggest figuring out all the spaces needed to be covered, then see who will be accountable for them. Such as:
- Finding the deals to consider
- Analyzing the deals
- Controlling the deals
- Legal
- Due diligence
- Construction
- Management
- Financing
- Asset management
- Partner relations
My coaching is, based on your strengths and weaknesses, form your team. Without a good team, you most likely won’t get out of the starting gate today.
What
This is somewhat out of order now, but based on your Why, a good Business Strategy will inform you what you are looking for and what type of self storage you will put into service.
Are you going to find mom & pop facilities that are small, and you can expand? Or will you automate them?
Will you do conversions instead of looking for the right type of building in the right location to repurpose?
Also included here are the financial benchmarks that will inform you if the opportunity works for you.
As I said in the book I wrote when I wrote it, we were seeking 12% cash on cash return averages for the first five years, and the ability to create enough equity in the first five years to refinance and give our investors their cash back.
When we analyzed a deal that appeared to achieve that, it worked. Until then, we looked.
Life was simple.
That is not my strategy now, and strategies evolve, but we still have one.
I will say when I stopped looking for “good deals” and started looking at deals as a simple yes or no based on my strategy, life got simple.
I’m simple as well, so things work better for me when it is simple.
Where
In today’s reality, our “market area,” or the part of the country where we need to focus on acquiring facilities, tends to be larger.
As part of our Business Strategy, we put in structures to manage people, places, and things.
The good news is, with technology today, that is much easier than it used to be. The operating systems are all cloud-based, so we can instantly see what is going on at every facility in real-time. Cameras can be viewed on our phones. I can unlock a gate if I need to from my phone while I am at a stoplight in my car.
I try to set the exaptation that if someone is getting in self storage, their market area to look for facilities needs to be larger than what they may have initially thought.
When
Based on your long-term goals, short-term goals, and why you are getting in self storage; this all informs you as to how long you will most likely hold facilities.
If you are creating long term cash flow or perhaps a legacy for your family, perhaps it is ten years or more.
If you are trying to create some cash to exchange into a larger project, perhaps three to five years after you have completed your value add.
Perhaps you are just trying to get some quick cash, and want to complete an expansion or conversion, then sell while there is still some upside for the next buyer.
A good Business Strategy will inform you what the optimal timeline is for you.
Why
As I have said before, this is the most important aspect of any business strategy, in my opinion.
My experience is it takes some work to get to the real why people have. It did me.
Mostly we think it is because of the money, or the freedom, or being able to work for ourselves and create something we can be proud of and pass on.
All of these are valid and good aspirations, but mostly they are not why we are getting into self storage business.
Many people look at me with a blank face when I ask them why. They say something like “to create steady cash flow,” and I suggest that is not it.
In our bootcamps, I ask folks to go deeper. “What do you think steady cash flow will provide you that isn’t there now?”
Then keep going.
Whatever the answer to that is, what will that provide you that isn’t there now? After a few dives into this inquiry (I was taught seven times), we usually get to a reason that truly inspires us.
This is what drives every aspect of the work the business plan is going to generate for us.
Again, my experience is that without a really powerful and emotionally inspiring why many people fall off and cannot go through the spaces to get in or grow a self storage business.
Our business strategy evolves and changes, but our why usually remains the same or close to it.
I don’t know what curve ball the universe will throw at you as you implement your business strategy; I just know it will throw one or more.
Conclusion
I can often tell when working with people. They wonder when I am going to get to the good stuff about getting in the business as I go through developing a business strategy.
But this, in my opinion, is the good stuff.
When we trace it back, most people struggle because they did not have a good strategy.
Without strong fundamentals in place, nothing works well. This work is the underpinnings of your storage business.
A good Business Strategy informs you every step of the way as you get in or grow your self-storage business.
And for us smaller investors, there is no better business in the world than this one.
