Self Storage Investing Newsletter

The 4th of July is a truly American holiday that is not observed in any other country. The self-storage industry is also a pure American invention – we have more storage in the U.S. than every other country in the world combined. But with all that space comes a serious responsibility. There are billions of dollars invested in this sector, both by individuals who hold shares in public REITs as well as those who have bought their own storage facility either individually or in partnerships. Storage has evolved from a goofy concept with little serious respect in the 1960s to a serious investment class only 50 years later. It’s that type of determination and freedom of thought that has made our country great from its founding.

We wish you a Happy 4th of July!

We would also like to take this opportunity to thank those who currently serve in the military, or have served in the past. You have made this country what it is today, and protected our liberties at huge personal expense and sacrifice. We thank you for your service!

When you look at the people who have found the right storage deal to buy and those that have not, one of the immediate observations is the attitude of the successful group. They have a mindset of taking any deal and trying to brainstorm the way to make it work – that’s called being a deal “maker”. The alternative is taking every deal and finding the fault in it so you can “kill” it. So why is this?

The harder path is normally the more successful

It’s easy to “kill” deals. Anyone can do it. You simply say “no”. But the problem is that you are never going to get anywhere taking the easy approach. It’s much harder to try to undertake the challenge of brainstorming each deal to find how to make it work. Since the average investor does not like to work hard, you will rapidly find diamonds in the rough that others have missed.

You learn a lot by modelling what would make the deal work

By expanding your “deal creativity” you can often put into play a great education exercise. You learn to recognize the chief drivers to profitability and ways around typical deal killers. This is all information that most storage investors simply don’t have. After a while, you’ll be able to sort every deal into two boxes: 1) those that can be made into winners and 2) those that have no raw material to work with.

Some of the best deals started as easy to kill

Another reason that being a “deal maker” is essential is how many great ones will get away potentially if you don’t think “what if …”. Here’s an example. We had a great property tied up. In diligence, we found that the driveway into the property was not actually part of the property. The owner had built it without obtaining a needed easement from the neighbor. So there was legally no way into the property. A deal “killer” would have said “then I’m out of here” and cancelled. But instead we said “well, I wonder if there’s anyway to get the neighbor to sign an easement”. In the end, they agreed to sign the papers if we paid them some money if the deal closed. Case solved. That’s what being a deal “maker’ is all about.

Conclusion

Having a positive approach to deals is superior to a negative one. You’ll learn more and have greater deal flow. You’ll have much better odds of finding the right storage property. And you’ll learn to be a true pro in spotting good deals from bad.

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A common article in investment magazines is a comparison of the rates of return of various asset types. This is actually a pretty good discipline, as the theory is that history repeats itself and you should use past rates of return to predict the future. So where does self-storage rank with the other sectors of investment in the U.S.?

It’s too early to tell, but the competition is pretty weak

Self-storage has only been around for about fifty years, which makes it too young for the standard comparison tables but, as you can see, the competition is not really fierce. Here’s the annual return levels since 1899 (net of inflation) for most every investment type ranked from least to most:

• Diamonds (.6%)
• Silver 0%
• Single-family homes .3%
• Gold .7%
• U.S. Treasuries .8%
• Art 1.9%
• Bonds 2%
• Stocks 5.2%

It’s hard to imagine any storage investment performing better than 5.2% -- or maybe even twice that.

Real estate does well in times of inflation – and we’re heading back into that

Since history really does repeat itself, it’s a safe bet that inflation (which has been so low for so long) will be coming back in the near future. And the reason that’s important is that inflation is real estate’s best friend. While values go up, your bank loan remain fixed. How high will inflation rise? We don’t know at this point, but even moderate rates of inflation have huge value in pushing yields on real estate.

Storage does well in good times and bad

Unlike most other asset types, storage does well in good times as well as bad. This will give it a huge boost as it will not have any down time. Why does it work in all environments? Mainly because Americans load up on material items when times are good and store everything securely in times of destabilization.

Conclusion

Although it’s too early to tell, self-storage investing is certain to rank as one of the profitable investment types in U.S. history. It’s resiliency is legendary and you can still buy properties at great prices.

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Once upon a time in American history, you either moved fast or you lost. Nothing’s changed in the world of real estate. The speed in which you can ascertain the true value of a storage deal is vital in getting the best deals under your control. So how do you gain the ability to draw first?

Time kills deals

The first step is to accept the simple fact that “time kills deals” – all good deals require a constant sense of urgency. It’s a competitive world when it comes to identifying and putting deals under contract. As long as you understand that speed is a necessity, you will find the desire to move quickly when the right deal surfaces.

As long as you have a due diligence period, why not?

Here’s the good news that allows you to move fast without worry. Every contract that you enter into should have a due diligence provision that allows you to drop the deal if you so desire within the “due diligence period” which is typically 30 days. Since there is no danger in moving fast, there’s no reason to hold back. And you should never sign a contract that does not allow for a diligence period. You should move fast but not sloppy.

You can always re-negotiate if the facts don’t check out

Here’s another reason you can move fast. If you don’t like the way the price is working out, you can always re-negotiate it again. Even though you tied the deal up at one price does not mean that you have to stick with that if it appears the seller misrepresented what they were selling, or the market just turns out to be weaker than you thought. Probably 50% of all storage deals include some form of re-negotiation.

Everyone does it

And this should give you some peace of mind. Everyone out there – including REITs and the largest portfolio owners – tie up properties under diligence even though they don’t know for sure they want to buy it. So it’s even morally right to shoot first and ask questions later.

Conclusion

Just like a gunfighter, a storage buyer has to move fast if they want to win. The good news is that everything is stacked up in your favor and you can move quickly without fear.

If you are looking for new financing or re-financing on your self-storage facility, then you need to learn all the options out there and have a capital markets consultant help you in obtaining the ideal loan for your property. There are many new types of loans developed over recent years that you should consider, as they have more attractive rates and terms than prior offerings.

MJ Vukovich is an expert on self-storage debt and he works for Bellwether Enterprises, which is one of the top debt consultants in the U.S. He is also a third-generation property owner who speaks your language. So give him a call today at (612) 335-7740 and let him tell you what he can do for your property, or email him at [email protected]. Let him know Frank & Dave sent you!