There are a finite number of good storage deals to buy in any given market in the U.S. And because of this restricted supply, many markets can appear “stale” after your initial efforts, as you have no control over what’s available and may have to wait for a mom and pop seller to make the decision to move forward. Since the more deals you look at, the better your odds of success, what do you do when you can’t find any good storage targets to buy in your market?
Why a market goes stale and how to adjust
When you first look at buying a self-storage facility in any metro area, everything is new and fresh and you have not yet talked to any sellers. But over time you systematically work through all of these owners and ultimately have either made offers to most of them or decided those deals won’t work for you. While you’re waiting for those offers to progress through various channels, it’s only natural to want to keep adding potential storage properties to your deal pipeline. And the way to bring on more deals to look at is simply to push farther out geographically.
How far out can you go?
The typical construction of any metro is the urban core, surrounded by suburbs, surrounded by exurbs and then just rural area. How far you can press out and still be in the exurbs is based on the metro and the way it has developed over time. You will find that some metro areas only extend ten minutes from their center until you’re in the middle of nowhere (Springfield, Illinois) and others you have to drive for over an hour to accomplish the same thing (Dallas, Texas). There is no standard distance.
What direction should you go?
Every metro market has its own sense of direction – at least as far as where the future is taking it. Almost every city grows in one main direction. In Dallas, it’s north. In Springfield, it’s west. But how can you get a handle on this. Here are some ideas:
- Consult www.Bestplaces.net and map out the single-family home cost in each zip code. Once you have mapped out the single-family home average price for each zip code, just connect the dots and extend that line segment farther out. Higher single-family home prices suggest where the wealthier people are moving and that’s the exact market that works well for storage.
- Check out the future road projects in the state, county and city. Most people are unaware that there are entire guides to upcoming road projects for every state, county and city. You can simply draw these on a map and it will tell you exactly where the progress is going to be.
- Map out where the Walmarts are. Walmart has the best development team in the U.S. and their diligence on where the future growth will be found is legendary. Simply connect the dots of where the Walmarts are, and you have the direction of the market’s future development.
How will deals change as you get farther out?
As you go farther out, you will soon find that deals share certain attributes which are refreshing, including:
- Lower prices. Sellers on exurban storage properties typically anticipate selling at lower prices and higher cap rates due to their distant location. The trick is to buy them in the path of progress cheaply and let the market grow up around them.
- More friendly sellers. The farther you go out from the city center, the easier sellers are to work with. Smaller town people just seem to be more honest and appreciative of your interest. That makes putting deals together easier and more enjoyable.
- Less competition. It makes complete sense that the farther you go out, the fewer buyers that follow, giving you less competition when negotiating.
- More upside potential. Moms and pops often have room to improve rent levels and occupancy, typically through better marketing. The farther out you go, the more unsophisticated the sellers are and the more upside opportunity to be found.
If you storage search is growing stale, then push farther out. That little extra drive can yield an entirely new batch of targets that might work perfectly for you. And if you choose it in the path of progress, the market will improve continually.