Secrets of Self-Storage Investing


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There are a lot of ways to make money as a real estate investor. Whether you invest in houses, office buildings, apartments, or self-storage units, each property type has it’s strength’s and weaknesses. If you’ve ever considered investing in a self-storage property, you’ll know that the cashflow and profits can be quite impressive.

In a sixty minute free webinar with David Campbell, professional real estate investor, and Jon England, CCIM SEC, you'll learn:

1) How to make money as a self-storage investor
2) The pros and cons of self-storage investing
3) Whether self-storage investing is right for you
4) The physical and intellectual components that make a successful self storage facility
5) How to evaluate a self storage facility’s finances, unit mix, and supply and demand to spot a “great deal”
6) And much more!

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Secrets of Self-Storage Investing

  1. 1. Secrets of Self-Storage Investing David Campbell Jon England Professional Investor SEC, CCIM
  2. 2. Today’s VIPs (very important points) • A good investment is one that’s good for YOU • Commercial real estate basics • Why self-storage? • Is self-storage investing right for you? • Spotting a good deal • Case studies
  3. 3. David Campbell - Founder Hassle-Free Cashflow Investing Former high school band director Self-made multi-millionaire Real Estate investor / developer / broker Financial educator / author / speaker Houses, condo-conversion, multi-family, winery, resort, office, retail, medical office, production home buildingFaculty Member: Investor Summit at Sea with Robert Kiyosaki
  4. 4. Jon England, CCIM, SEC• Investment Sale Broker since 2001• Brokerage of 12 self storage facilities totaling 600,000 SF / 3,700 Units.• CCIM Designation in 2006 (Certified Commercial Investment Member)• Counselor in the Society of Exchange Counselors This is the most exclusive creative real estate organization in the world that holds invitation only meetings to invest and market commercial real estate.• Active investor and manager of several real estate partnerships.
  5. 5. Disclaimer This is NOT legal, tax or investment advice. No agency created. Educational only. Consult your advisor.
  6. 6. ProfitROI = (Money + Time + Hassle) We all want more profit with less invested
  7. 7. Cash Throw Off from Rental Income
  8. 8. Equity growth from loan amortization
  9. 9. Tax savings from depreciation
  10. 10. Equity growth from appreciation (CAP Rate Compression)
  11. 11. Equity growth from rent increases (income/CAP)
  12. 12. Arbitrage CAP Rate > Interest Rate 8% RETURN - 5% COS T of BORROWING = 3% PROFIT ON BANK’S MONEY
  13. 13. Equity growth from Lease Renewal Longer term lease = lower CAP
  14. 14. Equity growth from increase in tenant or property quality Stronger tenant = lower CAP
  15. 15. Forced Equity from improved tenancy or development Higher NOI = Higher PRICE
  16. 16. Why Self Storage?
  17. 17. Why Self Storage?According to the Self Storage Association Fact Sheet:• One of the fastest growing commercial real estate sectors• 49,940 “primary” self storage facilities in the US.• Top 5 self storage companies* own and operate 9.8% of all primary facilities. *(Public Storage, Extra Space, Sovran, U-Store-It REITS and U-Haul / non REIT)
  18. 18. Why Self Storage? According to the Self Storage Association Fact Sheet:• 22,000 small business entrepreneurs who own and operate just one facility.• New construction is down • Only 450 new facilities came on line in the US in 2010 and 2011. • Development peak in 2004-2005 when 8,694 facilities were developed.
  19. 19. Why Self Storage?According to the Self Storage Association Fact Sheet:• It took the self storage industry more than 25 years to build its first billion square feet. It added the second billion square feet in just 8 years (1998-2005)• Ten percent of US Households currently rent a self storage unit, an increase from 6% of US Households in 1995.
  20. 20. 20 Self Storage Advantages:• Low Maintenance – (No Toilets)• Steady Cash Flow• Lower operating expenses• Low loan default rates• Month to Month leases• Inflationary hedge• High barriers of entry• Multiple profit centers aside from renting units• 3rd Party Management is available
  21. 21. 21 Self Storage Myths E D S T BU T H• Passive Investment MY• If you build it – customers will come• Location isn’t important• A mom & pop can’t compete with the REITs.• Why own a facility when I can make more money at storage unit auctions?
  22. 22. Is Self Storage right for you?• Do you currently own a bunch of residential, retail, or other commercial real estate? Self Storage may an ideal way to diversify your portfolio.• Self Storage often said to be 20% business 80% real estate. (This is not a NNN investment)• Employees….• Passive vs Active
  23. 23. Facility Types Class A Properties• 2000 to present.• Mostly REIT and large company owned – especially in urban markets.• Prime retail locations• May include car washes and other retail oriented businesses as part of their operation• Offer multiple camera video surveillance and door alarm systems.• Construction Materials: • Brick • Glass • Single and multi-level properties
  24. 24. 24Facility Types Class A Properties
  25. 25. Facility Types Class B Properties• 1980s to 1990s• Ownership combination of Mom & Pop and REITs.• Seasoned Facilities – many are location driven• Construction materials: • include metal and block buildings • chain link or other fencing• May offer climate controlled units• May include manager’s residence on site
  26. 26. 26Facility Types Class B Properties
  27. 27. Facility Types Class C Properties• 1960s to 1980s• Mom & Pop. Largely rural and smaller facilities.• Low cost provider of storage.• Construction materials: • metal/wood buildings • swing doors • no gate • gravel driveways.• Most will need to be converted or will eventually become obsolete
  28. 28. 28Facility Types Class C Properties
  29. 29. Self Storage ComponentsUnit Sizes • 5x5 • 5x10 • 10x10 • 10x15 • 10x20 • 10x30 • Parking
  30. 30. Self Storage ComponentsUnit Mix is Key!!• Does the facility have multiple unit sizes?• How balanced is the mix?• Are vacancies all one size?
  31. 31. Self Storage ComponentsUnit Type:• Traditional Storage• Climate Control Storage
  32. 32. Self Storage Components Tenant Types Residential Commercial Student Military
  33. 33. Self Storage Components General Trends Majority of customers will be residential Commercial tenants stay twice as residential Most storage customers live/work within 5 miles Strict HOA rules create demand for outside storage
  34. 34. Evaluating the Facility • Size • Unit Mix • Location Location Location • Traffic Counts • Management (retail office vs residence) • Signage / visibility • Expansion Potential? • Drainage • Traffic Flow within the facility
  35. 35. Evaluating the Area• 1-3-5 Miles Demographics• Neighborhood trends• Owner occupied housing vs apartment housing• City Growth patterns• Competition? • Who are they? • How far away? • Is location better or worse than the subject?• Prices of Units?• Verify property tax and budget for any adjustments
  36. 36. Evaluating the Numbers Gross Potential Rent - (Vacancy Factor) Gross Income - (Expenses) – Should range between 30-45% Net Operating Income (NOI) NOI CAP = PRICE
  37. 37. Evaluating the Numbers$185,000 (Gross Revenue)- $74,000 (Expenses)$111,000 NOI8% Cap Rate = $1,387,50010% Cap Rate = $1,110,00012% Cap Rate = $925,000 NOI CAP = PRICE
  38. 38. CAP RATES ReleasingTenant & industry income potential Lease strength TermFinancing Durability of Cost ofavailability tenant Income improvements Property attributes Demographics for expenses Upside for releasing potential
  39. 39. Evaluating the Expenses Typical Self Storage Expenses: • Property Taxes • Insurance • Payroll • Off Site Management • Utilities (phone/trash/gas/electric) • Software • Bank Fees • Office Supplies • Legal / Accounting • Maintenance & Repair • Snow / Lawn • Advertising • Website
  40. 40. Two Types of Self Storage Deals Turn Key vs. Turn Around Turn Key Facility Class A or Class B Little to no deferred maintenance Minimal work required Lower Cap Rate / Higher Price REIT’s attracted to these especially in urban markets
  41. 41. Two Types of Self Storage Deals Turn Key vs. Turn Around Turn Around Facility Class B and Class C Low occupancy Poor management Significant deferred maintenance High upside potential if “problem is solved”
  42. 42. Case Study #1 - Turn Key Deal227 Turn Key Units• built in 1998• 34,000 SF• Stable Occupancy 80%• Motivated Seller• No Website• Not open Saturdays• No rent raises in 7 years
  43. 43. Case Study #1 - Turn Key Deal• Acquired using SBA 504 Financing• New website and SEO marketing program established• Established New Saturday Hours• Raised Rents after six months of ownership. Not a single tenant complained.
  44. 44. Case Study #1 - Turn Key Deal• Occupancy consistently at 90%• Increased the value approximately $300,000
  45. 45. Case Study #2 – Turn Around Deal350 Turn Around Units• 80,000 SF• Built in 1996• 60% Occupancy• Distressed Seller• Poor Management• Abandoned vehicles• Poor reputation in the market.• Gaps in perimeter fencing• Broken security cameras• Poor owner record keeping
  46. 46. Case Study #2 - Turn Around Deal Solutions Replaced Manager Installed storage softwareImplement security measures Reconfigured Access GateInstalled New Digital Signage Fixed maintenance items
  47. 47. Case Study #1 – Turn Around Deal• Occupancy trending up• When stabilized $1M to $1.5M increase in value
  48. 48. Feel free to contact our panelists with your questions David Campbell Jon England
  49. 49. 49SECRETS OF SELFSTORAGE INVESTINGBy Jon S. England, CCIM SECPrincipal – Investment BrokerageLee & AssociatesPhone: 913-890-2002jengland@lee-associates.com
  50. 50. Find more investor training and investment opportunities at (866) 931-9149 ext 1