Inside Self-Storage

JAN 2019

Inside Self-Storage (ISS) is an information source for industry owners, managers, developers and investors covering news, trends, facility operation, finance, real estate, construction, development, marketing, technology, insurance and legality.

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Page 16 of 47

The Ability to Analyze the Financial Viability of Opportunities It has never been more critical to be able to analyze a prospective deal and project the future cash flow of new space coming online. How much you can pay for a facility today is determined by understanding: • The projected future cash ow of an expansion • The cost of building the expansion • The operating costs for the expansion Then, based on those future cash flows, you back into what you can pay to get them. The good news is there's a lot of training out there to acquire these skills. The industry offers support to new investors via free and paid programs, and there are experts you can tap as well. Compared to most real estate, self-storage is a simple product to build and analyze. You just need to know how to do it at the beginning of the game if you want to be able to compete with other buyers. You should know what you can and can't pay for a self-storage opportunity. You have to trust your numbers. The Ability to Finance Opportunities When I got in the business, I wasn't strong enough to get a loan by myself. That didn't stop me. I found some partners who could sign the loan. Today, I still need partners. You may be able to do this by yourself. However, before you put your project under contract, it's prudent to know what type and how large of a loan for which you can qualify. Remember, you can use the income from the project as your income for qualifying in most cases. Also, Small Business Association loans are a great way for someone new to the industry to get more financing than from a traditional bank. Check in with a lender or two prior to writing your first contract. The Ability to Put Cash Into Projects Know where the equity is coming from. Again, when I got started, I didn't have the equity. I used to put the projects under contract, then go raise the equity from investors. I can't do that anymore. The due-diligence periods have become so short that I need to have my equity raised before I start. You may have your own money and that's great. If you're using investors, have your soft or hard commitments ready before you write the first offer. Often, you must show the equity to have your offer taken seriously. Your Abilities Around Construction For the small investor to get the returns needed today, it almost always has to be a value-add project. The safest way to create a value-add situation is to find a smaller "mom and pop" facility, expand it, and bring it up to today's "institutionnel" standards. That almost always requires the ability to construct more storage. That doesn't mean you have to build it yourself, thank goodness; but you do have to know: • What the construction process involves • The approximate cost • When construction will start • How long it will take • What the income looks like as it leases up and when it's stabilized Also, how you will facilitate the construction? Will you hire a general contractor or a construction manager, or will you do it yourself? You need to know this upfront so you can run your financial analysis. Why? Your financial model tells you what you can pay for the existing facility or raw land. I'm not a builder; you can ask my wife. But I do know construction numbers. I also stay very involved. I don't simply turn it over to a builder. That's a formula for the project to not meet the budget I created in the pro forma. The Good News To get into the storage business today it does take more skills than it used to, but they're not hard to learn. Do the work required and you'll stand head and shoulders above the others who are also ✔ Build a support network. ✔ Be very speci'c with your goals. ✔ Delegate whenever possible. ✔ Keep your overhead low. ✔ Find your best niche—and stick with it. ✔ Keep your day job just a little longer. ✔ Avoid distractions at all costs. LEARN MORE Learn more from author Mark Helm in the video "Insider Strategies for Buying Self-Storage in Today's Crazy Market," available in on-demand and DVD formats exclusively at trying to get a storage venture off the ground. If you lay the groundwork, you can build a successful business and start creating the wealth this product offers. I believe it's the best business there is for the small investor. Just perform the work first so you can be the one who wins. Mark Helm is a commercial real estate agent and self-storage investor. He began working with real estate investment trusts in the mid-1990s to locate and purchase self-storage properties before striking out on his own. He's the author of "Creating Wealth Through Self-Storage" and the creator of "Storage World Analyzer," a cloud-based, financial-analysis software tool designed to help self-storage operators and investors evaluate potential real estate acquisitions or development projects. To reach him, e-mail Ownership Advice Source: Small Business Administration, "7 Tips From Successful Small Business Owners" January 2019 I ISS 15

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