Self Storage Investing Newsletter

There are a lot of great self-storage facilities on the market, but it’s impossible to succeed unless you pay the right price. We are firm believers in the concept of “win/win”, but that goes both ways and the seller must allow you to make a profit and succeed in covering your mortgage and taking home a fair amount for your time and risk. So don’t think that simply finding a needle in the haystack is the route to victory. You also have to negotiate a good price for that needle, and make sure that you evaluated the deal properly. Great deals are ones in which the buyer has done their diligence and paid a price that’s fair for today, and offers upside in raising rents or occupancy.

Most people hate to say “no”. It seems such a negative word, and one that does not offer any hope of profit or satisfaction. But the truth is that “no” is just as important a word as “yes” – it is a building block for creating successful deals. You can’t be a successful self-storage investor unless you know when to say “no”.

You need a firm walk-away price

Whenever you are negotiating on a self-storage facility, you must have a “walk-away” price from which you will not waiver. One you draw a line in the sand, you will covey that to your seller in both your actions and body language. Most sellers will want to push you to your limits and then, when they realize they are there, will back down. If you can’t say “no” anything more than a fair price, then you won’t ever be able to get a good price on anything.

And you need to stick with that

Some people promise themselves that they will say “no” at a certain price level, yet they don’t stick with that promise. It does you no good to put up a barrier and then take it down. You will be much better off to say “no” than to be weak on your limits. The seller will respond when you have a hard ceiling, and be confused when you don’t seem to have any barrier at all.

“No” can be temporary

When a seller says “no”, that is not always the end of the movie. A “no” can be the seller testing your boundaries, and will then say “yes” when he sees that you won’t budge. Similarly, you can say “no” and then retract it later if new information shows that the price is reasonable. So don’t refrain from saying “no” because you’re afraid that it’s a permanent fact. “No” only refers to that one moment in time, and is not binding.

Never burn bridges

In many deals we do, there is a back and forth with the seller that can last days, weeks, months, even years. It’s a natural progression in deal making. You never want to burn bridges along the way. If the seller promised you a yes or no answer on the first of May and then, when you call, says he needs another month to decide, you don’t say “look, I can’t work like this, you idiot, I’m out of here”. Instead, you agree to the delay and hang in there.

It’s all about volume

The key to success in buying self-storage facilities is volume. The more deals you work on, the better your odds of finding a true winner. Try to have a ton of deals under negotiation at the same time, and you have a much better chance of success – the more balls you swing at the better your chance of hitting a home run.

Conclusion

You cannot be a good dealmaker in the self-storage niche without saying “no” when you have to. Give it some practice and see your deal pricing become more attractive.

Bradley Wayne Hughes (born September 28, 1933) is the founder and chairman of Public Storage, the largest self-storage company in America. As of 2015, Hughes is worth roughly $2.5 billion. Known all his life by his middle name, B. Wayne Hughes was the company's President and Co-Chief Executive Officer from 1980 until November 1991 when he became Chairman of the Board and sole Chief Executive Officer. He retired as Chief Executive Officer in November 2002 and remains Chairman of the Board. It took him about 30 years to hit billionaire status. He started with nothing.

The two most important things to know about a self-storage facility you are looking at are the number of occupied units and the monthly rent. Of these two facts, the monthly rent is fairly static, but the occupancy can go up and down violently. Since you are paying a price that directly relates to the occupancy, how do you protect yourself?

Today’s occupancy is only one part of the puzzle

While the current occupancy on the self-storage facility is important, you have to remember that the occupancy goes up and down and the current number of occupied units must be weighted with average of many months and years, if possible. You need to get a copy of the rent roll, month by month, for the past three years and then average them together. It’s like asking someone what their water bill is and then multiplying by 12 to get the annual consumption – the only way to really get an accurate figure is to acknowledge that amounts go up and down and averaging them together is the only fair way.

Understanding the stats on customer retention

The national statistics for customer retention in self-storage facilities is that you lose 10% of your customers per month. So what’s that mean? It means that you have to be constantly marketing and getting new customers in the door. But it also means that you have to realize that occupancy can go down fast if you mismanage the property.

Management is key

Ask any self-storage owner what the key to success is and they will say “the manager”. Even if you buy a facility with a great location at a fair price, it will go nowhere if you can’t manage it effectively. A bad manager can literally bankrupt you by emptying out your tenants quickly. If there’s one item on the instrument panel that you have to monitor closely, it’s your manager’s performance metrics.

Always play it safe

You cannot put enough “fluff” in your numbers on occupancy. If the self-storage facility is currently at 70% occupancy, then see what would happen if it fell to 60% or lower. Some buyers run the numbers to see just how low occupancy can go and still be able to cover the mortgage payment. Remember the adage that you should focus on the bad things that can happen, because the good things can take care of themselves.

Remember that you’re betting on the market

Any real estate buyer is betting not only on the property, but on the market itself. A self-storage facility in Manhattan, New York is worth a whole lot more than one in Manhattan, Kansas, even though they might be the same size and construction cost. So you’ve got to count that into your pricing metric. If you are in a vibrant market, you will have more potential customers and higher occupancy. You can take a bit more of a gamble on occupancy in a great market than a weak one.

Conclusion

Occupancy is something you have to believe in. You cannot make a mistake or you will ruin your self-storage facility’s economics. So play it safe, and play it smart.

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