There is a 50 unit storage business for sale. It is about two miles from my house. From what I can tell, pretty much everything is handled online as there is no visible office and you can book/pay online based on what I see on the website. It wouldn’t be much of a problem for me to run it, and/or have my family check up on it when I am gone.
There is no room for expansion as the facility uses every bit of available space in the lot.
I know nothing about buying businesses. My goal in buying it would be to generate income soon after I retire in 3-4 years (upon reaching FRA). I do not need any income from it now, and would likely pour all revenue back into it - unless it made sense to pull some out.
When buying a business like this, how long should it take for the business to pay for itself? Any other considerations?
Things I’d look at in my analysis:
ROI sensitivity at different levels of occupancy (I know storage units are traditionally high occupancy, but still)
Adequate budgets for maintenance, repair, lawsuits arising from stupid shit, etc.
Hidden costs like collecting from behind tenants, etc.
And a healthy dose of skepticism/due diligence around any numbers you get from current owner (repair costs are low because they’ve deferred everything, etc.)
Good luck; plenty of people have made piles of money from storage! Just do your homework.
I have a good friend who has worked in this space (C-level), I’ll see if I can get you some guidelines. In general (not site specific), they print money
Out of curiosity, where do you pile all that money back into a fixed business with no room for expansion over 3 to 4 years?? You gonna plant some trees?? (-;
My guess is that the seller’s price to you is not leaving a ton of room for profit, otherwise they would probably hold onto a nice cash positive, low maintaince business. As others have said, check the occupancy vs ROI and see if it even pencils out for you…Maybe check competition in area rates and see if there is room there too. How big of a loan do you have to take out to buy it??
What is the market like around there? The storage unit market here seems pretty saturated as 2 different large retail spaces dedicated a bunch of space to indoor storage units after retailers shut down in 2020. Plus a bunch of other standalone businesses have opened up.
What is the current market rate per square foot of storage. Is their room for rent growth? Room for outdoor space rental, think RV space, boat space, ect.
What is the current occupancy rate?
What is the current turn over rate?
Insurance cost?
After purchase property taxes? (the key here is after purchase, not current depending on the state)
R&M?
Has the seller offered an accurate P&L?
Seller financing available? For how long? Down payment amount?
After all expenses including mortgage, you probably need to be in the cash on cash rate of around 7-10% (hopefully higher), ROI of 5-7%, Cap rate in the 7% range.
Are you looking at this as diversification from other investments? Cash under a mattress, ira, 401k, etc. do you want a hobby business in retirement, a few hours per week or whatever to manage any maintenance amd upkeep, evictions, etc.
Self storage market continues to grow. We (murica) like to consume and hoard.
What does the local area competition look like? Low vacancy? New self storage lots? What does the local market trend or demographics look like? Net migration, new subs in the area, new home builds or businesses?
The local guy in my small town was told he was not approved for more builds. Folks have lots of toys, boats, powersports, sxs, atvs, snowmowbiles, etc, along with excess household crap. And many seasonal homes, with small lots, and thus no room for additonal or any garage space.
Can we look forward to you being on storage wars in the future?
To help refine your own thinking and help people answer your question, you should clarify what you mean by “pay for itself.” Do you mean — how long until you get your investment back? That depends, among other things, on the nature of the business.
Consider a business that has minimal up-front capital costs, but requires a lot of (your) labor. It might not take very long before you have earned enough to recoup your initial investment, but you’ll want to figure out how much you’re making per hour of your time.
By contrast, you’re describing a business with a large up-front capital cost, but not a ton of your time (hopefully). If so, it will take many years to recoup your initial investment.
This is the pricing from their website. When I looked at it last week, they listed the available units for rent - I don’t see that now. At the time, they had 8 of 50 units available, so 84% occupancy rate at that time.
There is a large housing development (DR Horton for those familiar) going up between my house and the unit, and it will end up with 300-400 homes. They are probably 25-30% built at the moment. There is another storage facility about a mile further away from this one.
My parents’ house is right across the road from the housing development. They have about an acre that they said that I could have if I wanted to build a boat/rv storage. I would have to get it zoned for commercial use and bring in a lot of fill dirt as it slopes down to the lake. But, the housing development HOA does not allow people to park RVs or boats in the yard unless they are inside a structure - so I could probably sell every slot available.
Windy asked why they were selling. I think these two things go together. If he’s selling because he’s trying to take a profit, then I think your bolded statement is right on. If he’s selling because he needs some cash for some other reason, then there might be some room.
The location is one block off of a four lane highway and is on a very busy 2-lane road. Properties along that highway are selling for a premium, so buying and building my own probably isn’t feasible.
As for loan. They’re asking $479k for it. If it made sense, I could put a pretty large chunk down, but was thinking of maybe financing 50% or so.
Shoff - thank you for taking the time to do the math. That was very helpful. Assuming that your numbers are realistic, and they seem to be - I don’t think this property is a good use for my money. Now, to consider plan B.
