investment
Before You Invest
Seven Steps To Starting Your Self-Storage Investment
By Marc Goodin
Before You Invest
Seven Steps To Starting Your Self-Storage Investment
By Marc Goodin
Step One:
Learn, learn, learn self-storage. There are great books, magazines, state and national conferences, seminars, and mentors to learn from. Learning weekly about self-storage is critical to help you determine your options and what is best for you.
Step Two:
Determine how much time you are willing to invest in your self-storage business. If you are going to be a developer for maximum profits and develop a self-storage from the ground up and manage your facility, it can take significant time—almost a full-time job. With the right team, you could significantly reduce the time often to 8 hours a week and then less once you have learned self-storage operations, sales, and marketing. If you do not have the required time, or if you are not the entrepreneur type, investing in self-storage stocks or funds may be the better option for you.
Step Three:
Calculate the personal cash you can invest, excluding money to be borrowed. Examples include cash on hand, assets that can be liquid such as stocks and bonds, and/or retirement accounts. At times, adding a partner to increase your cash investment can be an option.
Step Four:
Determine your total investment dollars with a loan based on your available cash. In today’s market, many lenders may require 35-plus percent down when purchasing an existing facility and even more down for new construction along with a host of other terms you need to review. In the current financial market, SBA loans are an especially good option. Typically, they allow for 10 percent down if you are borrowing less than $5 million and 15 percent down for loans over $5 million. You should call two to three lenders to get information on borrowing qualifications, general terms, and the amount you could borrow with the cash you have to invest.
For example, let’s review three lending options for new construction:
- An SBA $5 million loan at 10 percent down will require you to have a minimum of $500,000 cash to invest.
- For a good-sized project, say 80,000-plus gross square feet with an assumed all-in cost to break even of $10 million. This would require you to have a minimum of $1.5 million cash to invest. (Note: This project could be built in multiple phases, reducing the cash required for phase one.)
- This same $10 million project at a traditional bank may require you to have a minimum of $5 million cash to invest.
Step Five:
Confirm which investment option(s) is best for you. Buying stocks or investing in a fund may be the best option if you are not ready to be an entrepreneur, don’t have the time, or if you have limited funds. Another option is buying a small or large facility. However, the most profitable option is often building a self-storage facility from the ground up that is large enough (50,000-plus net rentable square feet) to make a lucrative income and have oversized resale or refi loan value because REITs will pay a premium for it.
Step Six:
Determine how much land you need. Land area can vary depending on many factors. Here are some basic guidelines. You can often fit 10,000 to 15,000 gross square feet of single self-storage per acre of land.
- 6-plus usable acres for an 80,000-gross-square-foot, single-story facility consisting of multiple single-story buildings with both non-climate-control and climate-control units. This facility can be built in multiple phases to help with financing and scale.
- 4.5-plus usable acres for an 80,000-gross-square-foot, single-story facility consisting of one single-story large building, predominantly climate control. This facility can be built in multiple phases to help with financing and scale.
- 4.5-plus usable acres for an 80,000-gross-square-foot self-storage with a combination of single and multiple single-story buildings.
- 2-plus usable acres for an 80,000-gross-square-foot, three- story facility single phase, maybe 1.5 acres if no side yards and/or no storm drainage detention is required. You cannot phase multistory facilities, so they cost more initially; this will increase your initial cash investment.
Given the combinations of design parameters and potential landmines, it is important to review every parcel of land in detail with your team, starting with your civil engineer and architect.
Step Seven:
Start looking for land today! Don’t wait until you are a land expert. Expertise comes with consistent effort. One to two hours a day = seven to 14 hours a week = 364 to 728 hours a year. The numbers look like this: Research 100 properties, make three offers, and purchase one property. While it takes four to eight hours to research a property to determine if you should make an offer, most properties can be rejected in 10 minutes because they do not meet one of the top six land parameters. It is good to have a finding land pro with guidance and answers on your team day one so you can get off to a fast start, go around the land mines, and save time and money.
Marc Goodin is the president of Storage Authority Franchising (www.StorageAuthorityFranchise.com). He owns three self-storages he designed, built, and manages. He has been helping others in the self-storage industry for over 30 years. He can be reached at marc@StorageAuthority.com or directly at (860) 830-6764 to answer your franchising, development, marketing, sales, and operations questions. His best-selling self-storage books are available on Amazon.