Inside Self-Storage

JUN 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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TILT-A-WAY TILT-A-WAY TILT-A-WAY Beautiful, Secure Commercial and Residential Entryways Security Gates Heavy Duty Barrier Design Safety Features • Adjustable safety obstruction systems • Barrier locks in down position • UL325 listed • Battery back-up 2011 Harnish Blvd., Billings, Montana 59101 800-523-3888 or 406-656-4360 www.tiltaway.com • email info@idealmfginc.com Celebrating over 50 years in the business – Since 1957 www.tiltaway.com • email info@idealmfginc.com Dedicated Performance Make an Ofer Before investing time and money in design work, get that property under contract! Negotiate the longest possible time to line up permits and financing before you close the deal. Owning the land means you're paying interest and property taxes, so you may want to offer a higher purchase price or non-refundable deposit to delay closing. The offer should include contingencies that allow you to back out if you can't get reasonable financing or approvals to build. Fill in the Details You can't get lending based on your rough plan, nor can you get solid quotes. You'll need a local civil engineer to design a stormwater plan, which usually includes a pond. Your building manufacturer will work with you to design a layout and that best uses the land. You'll then work up the exact unit mix and design. Once you have site plans in place, you can request detailed quotes from your suppliers and add detail to your revenue projections. Assuming you're staying on track for your project to be financially viable, you're ready to apply for permits. In most cases, the building manufacturer will provide the permit set you'll need. Complex projects may also include an architect. Keep detailed records on all the money you spend on permits and engineering. It should count as equity in the project in the eyes of the lender. Line Up Financing Lenders will base their decisions on the five Cs: character, cash flow, capital, collateral and conditions. The exact requirements will differ based on lender and programs, but they'll need to see a detailed construction budget, exact unit mix and a cash-flow projection. If you have a collateral shortfall, a lien may be placed on your home or other property. (They'll typically discount the assets by 20 percent, which is common on high loan-to-value projects.) Remember, pricing for your subcontractors can be volatile, especially when steel prices are fluctuating, so make sure your quotes are current when you close the loan. Lenders may also need to see building permits and proof of zoning before closing. New owners/developers with limited resources might want to take advantage of Small Business Administration programs, which allow up to a 25-year term and finance up to 90 percent of the project value. Typical interest rates are 1 percent to 2 percent above prime and are adjustable. Expect an interest-only period during construction. Lenders may also offer variable rate during construction with three- to five-year fixed rates upon completion. Purchase the Land I've done projects where I financed the land and others where I owned the land prior to financing. When feasible, buying the land for cash makes the transaction much easier, and the land will count as equity when arranging the loan. The other advantage of buying the land outside of the loan is the interest-only portion won't start until you pay for expenses from the loan. Typically, this would be a building deposit or site grading. Build It With land, financing, permits and approved plans, you're now ready to build. Anxiety will remain high as you'll inevitably wish the project is completed faster. After all, your interest-only loan will balloon quickly as you make payments to contractors. You can't do much about weather interruptions, but you can do your best to make sure materials show up in a timely fashion. You don't want them to arrive too late, or there will be delays. You also don't want them to arrive too early, or they could be damaged or stolen while at the job site. You can also make sure you're listening to contractor issues and feedback to ensure everyone is working efficiently. When construction is done and the Certificate of Occupancy has been issued, you'll switch to rent-up mode. It'll get better with each week until you break even. Before you know it, you'll be thinking about your next project or expansion. You'll likely start right around the time you forgot how much work that first one was. Good luck! Steve Hajewski is the marketing manager at Trachte Building Systems, which designs, manufactures and erects a full line of pre-engineered and customized steel self-storage systems, including single- and multi-story, portable storage, interior partition and corridor, and canopy boat/ RV. He also owns a self-storage facility in Wisconsin and is a frequent contributor on Self-Storage Talk, the industry's largest online community. For more information, call 800.356.5824; visit www.trachte.com. 16 ISS I June 2019 www.insideselfstorage.com

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