Every self-storage deal you look at comes to a fork in the road. One path belongs to the deal killer. The other belongs to the deal maker. Anybody can kill a deal. You find one ugly number and walk. But some of the best facilities ever bought were passed over by a long line of buyers who took that easy out. Here’s how to see what they missed.
The Seller’s Numbers Are Not Gospel
Historical numbers tell you how one owner ran the property. They don’t tell you how you will run it. Management mistakes are everywhere in this business, and one of the most common is overpaying the manager. If the seller shows a $60,000 manager and you can get the job done for $30,000, you just beat his numbers by $30,000 a year. Many mom-and-pop owners still staff an office all day, while more and more operators now run smaller facilities remotely with online rentals, kiosks and keypad gates. So build your own budget, line by line, based on how you would operate.
Know The Market Cold
A 30% vacancy rate under the current owner doesn’t mean you have to live with it. And a 10 x 10 renting at $50 doesn’t mean it can’t get $100. But that can’t be wishful thinking. You have to know every competitor within a 5-mile radius: their rates, their occupancy and their specials. Also compare what existing customers pay to the street rate. Storage rents are month to month, and a seller who never raised rates on long-time customers left money on the table for you. Just stay sober, because street rates have been soft in a lot of markets.
Hunt For Better Terms
There’s an old saying that all ills can be cured with zero down and non-recourse financing. You don’t need anything that extreme. Seller financing is always attractive, and so is a smaller down payment. Those usually show up when the owner holds the property free and clear, which plenty of longtime storage owners do. A long fixed-rate term, like a 15-year loan, can turn a marginal deal into a good one. And the lending world has widened, with debt funds and other non-bank lenders doing more storage loans, so shop more than one source.
Push The Seller
Lots of buyers kill deals simply by giving up too soon. We’ve renegotiated many deals into winners by telling the seller, plainly, why the deal doesn’t work at his price and what price does. Smart sellers listen. They know the next buyer will find the same problems, and so will the next lender.
Make It, Don’t Fake It
Being a deal maker doesn’t mean buying weak properties or skimping on diligence. It means doing better diligence than the other guy, then seeing what’s possible. Anybody can be a deal killer. Be the one who finds the winner everybody else walked away from.
