With the New Year upon us, there’s little time to waste if your goal is to acquire a self-storage facility in 2020. But it’s one thing to talk about it, and another to actual do it. When approaching something as significant as buying a storage property, there’s an established play book that has very concrete, step-by-step directions, if you will simply follow what others have learned over the years. So what are the steps?
Choose a territory of interest
Even though being able to easily drive to your storage facility is not an essential part of its success, it certainly makes for a less stressful and happier management when you’re getting started. If you look at storage properties about 4 hours from your house, that means you can drive there and back in a single day – which represents the feeling of “control” that most storage buyers crave. So you should initially draw a circle 4-hours in radius from your house and focus on this “territory”.
Build a deal funnel
Now that you have a defined territory, it’s time to build a deal funnel of properties that are potential acquisition targets. You can assemble this from multiple sources 1) online listings on Selfstorages.com or Loopnet.com 2) contacting all storage industry brokers 3) creating a database of self-storage facilities in your target area (simply Google them up in the markets that interest you and get the addresses, then enter those addresses in the property tax assessor’s database to get the owner’s address) and then direct mail or call them to see if they would be interested in selling.
Attain the knowledge to place storage properties into the “might be a deal’ or “no deal” box
You will never be a good storage buyer if you do not know what attributes make any property into either “a potential deal” or “a deal I would not want to buy”. To learn these attributes, you have to educate yourself on what makes a deal successful vs. a failure. You can get that knowledge from an industry-specific course, or by trying to read everything you can find online. The key is that you have to be fairly knowledgeable or you’re likely to make bad decisions.
Be a “deal maker” and not a “deal killer”
The easiest thing in the world is to be a deal “killer” – someone that finds fault in every storage facility on earth. However, there’s no money in that. Instead, you want to be a deal “maker” which means you try to discern what it would take to make any storage property a profitably investment. That does not mean violating the basic tenets of success, but being creative on how to take an old facility and bring it back to life if the market warrants it.
Make a lot of offers
Those who make lots of offers are typically the most successful, as in many ways finding good deals is a volume business. Don’t hold back on making an offer on every good deal you see (good being defined as having the correct attributes for success). Even if the deal says “firm” don’t fail to make an offer that may be far less than the asking price (because you never know how desperate the seller is). If you can make 100 offers you have ten times better odds of success than if you make 10.
Learn how to negotiate effectively
Negotiation is a very important skill – and one that most people are not well versed in. If you want to see it in practice, watch the History Channel shows of “Pawn Stars” and “American Pickers” as they are nothing but negotiation for 30 minutes at a time. The basic tenets of negotiation is that you need to let the seller name the initial price, offer low (so you can negotiate up to your target price), and establish a price in which you will not go higher so that the seller gets the subliminal message that you have reached your limit and will then lower their aspirations to meet yours.
Perform exceptional due diligence
Benjamin Franklin once said that “diligence is the mother of good luck” and that’s as true today as it was in the 1700s. Those that remove the risk in any deal always have great odds of success. To do great diligence you will need to know what to watch out for. You should buy a due diligence guide to the storage industry or at least read every single article on the internet and talk to some existing storage owners for guidance.
Learn how to get a loan
Real estate is all about leverage, and you have to be a good borrower to play the game. This means that you have to know how to build a good loan package for a bank, as well as where to look for a bank to begin with. Many storage owners use “brokers” to find their loans, with the top ones being Security Mortgage group for loans that are $750,000 and above at (585) 423-0230 and M.J. Vukovich for loans over $2 million at (612) 335-7740.16261.335.7740612
Educate sellers on owner-financing
For many sellers the right decision is to self-finance the mortgage, which is often called “seller carry”. The reason is simple: money. All a seller will get at a bank is 2% on their money in a CD, while they could make 5% carrying the paper. Make sure that your seller is understanding of the greater returns from carrying the first-lien mortgage. It’s a whole lot easier – and lower cost – to have the seller act as the bank, and many will if you only ask them correctly.
Sell, sell, sell and cut, cut, cut
There is a basic chant of those who run storage properties well and it’s “sell, sell, sell and cut, cut, cut”. This recipe means that you focus on raising revenues aggressively while also keeping costs low. This basic formula leads to greater net income, which means both cash in your pocket as well as future property value. What’s the #1 way to bolster revenue in most storage properties? You probably guessed it: internet marketing. Many older moms and pops have never worked on this aspect of their business.
Focus on monthly B/A/D review
The mark of the good storage owner is a strict adherence to budgets. This includes a monthly review of the budget vs. actual performance which is often called the “B/A/D” which means “budget/actual/difference”. The concept is that you focus on those areas of the business which are behind projection so that you can stay on course (kind of like a GPS system).
If you goal for 2020 is to enhance your financial stability and buy a self-storage property, then this list will get you started. Anything is possible if you break it down into simple steps and focus on the completion of each one.