Self Storage Investing Newsletter

On this month in 1792, the flush toilet was invented. The good news is that self-storage owners don’t have to care about this invention, except in their own homes. Self-storage facilities have no toilets to fix, which are number one operational complaint of apartment owners. In fact, since customers do not reside in their storage units – or even spend more than a few minutes in them – owners of storage properties don’t have to worry about all the necessities (and worries) of virtually every other form of real estate from office to multi-family to lodging. This is a huge advantage. Those reduced management concerns pay big dividends in lower staffing costs, repair costs, utility costs, and capital costs. So even though May 1792 was the year that revolutionized plumbing, all self-storage owners should celebrate that they don’t have to get involved with such things.

This is a photo of the first Piggly Wiggly grocery store, located in a museum in Memphis, Tennessee, which opened in 1916. This was the beginning of the national grocery chains, which are now a $600 billion per year industry. But it all started with this one small store in Memphis. So how can you successfully build a large self-storage portfolio, starting with just one property?

Don’t be afraid to test your ideas

Sam Walton built Wal-Mart on the platform of “try it and test it”. Instead of having ideas and then never acting on them, he would put any decent idea in motion, and then test its effectiveness. This is how he was able to create an entirely new platform for retail – because he never worried about following existing convention. An employee once said to Walton “how come the walls in the store are that boring grey color? I bet brighter colors would sell more”. So Walton told him to go ahead and paint the walls of that store a different color, see if the revenue went up as a result and, if it didn’t, paint them back to grey. It was this open attitude to testing new ideas that gives you the edge.

Understand the drivers to profitability

Have you ever read books like “The 4 Hour Work Week”? Basically, all it’s about is learning what are the key drivers to getting things done in your business and then ignoring everything else. The same can be said about self-storage. Marketing is key, but choosing the color of flowers at your entry is not. Understanding the drivers to profitability allows you to focus strictly on these essential items and not waste time on the non-essentials, which you can easily delegate to your manager. That’s one reason that Public Storage has been able to outpace the growth of all other industry players – because they know precisely what the important things are and avoid any endeavor that takes away from those drivers.

Build a team

No successful large portfolio has ever been built without a strong team. By yourself, you can buy and manage a couple properties, but to break through that ceiling you have to build a team that can support and meet your goals. Obviously, the most important members of that team or the self-storage facility managers, but there are other players, like your accounting department, regional managers, marketing team and the real estate brokers that bring you deals to consider. Learn how to manage and motivate these individuals.

Think big

Perhaps the first step to growing a large portfolio is simply to think “big”. If you don’t give consistent thought to growth, it will never happen. Conrad Hilton – the hotel pioneer – used to dream of being big in the lodging industry, while managing his one small holding in Cisco, Texas. One day, his mother said “Conrad, to build big ships, you have to go where the water is deep”. That lead him to start looking at hotel opportunities in bigger cities like Dallas, and he soon learned that he needed an entirely new attitude – and focus – in order to grow.

Be prepared for instability and downturns

Any thought of growing large should also include plenty of thought on how to control the downside. Smart operators have a Plan B for every possible contingency. Even Public Storage had the bright idea of modifying the manner in which it secures debt to guard against downturns in the lending market. The bigger your portfolio gets, the more it resembles moving a battleship through a harbor – it’s hard to start and stop and need to make every move smart and concise.

Conclusion

All self-storage portfolios began with a single facility. Everyone starts small and builds from there. There is no reason you cannot be the next Public Storage if you put your mind to it.

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It is widely accepted that there are four main drivers to demand for self-storage, also known as the “4 Ds”. They are death, divorce, downsizing and dislocation. What these all have in common is instability. Customers have determined that the first step in dealing with a crisis is to store their material goods safely away until they can again obtain stability and then bring them to their new home. Of course, in America post-2007 (the Great Recession) many people are finding stability hard to find, and their lives are in a perpetual state of flux. That’s why storage occupancy is so strong in the U.S. – there is so much instability out there.

Warren Buffett once said “risk comes from not knowing what you’re doing”. Probably good advice, since Buffett is the #1 investor in American history. So how can you take that philosophy to heart and know everything there is to know about self-storage investing?

Take our home-study course

Our course is #1 in the industry for the simple reason that it’s built on fact, not fantasy. We do not sell expensive coaching and mentoring like others in the industry do. As a result, we tell it like it is and do not hold anything back from you. If you complete the course, you will be smarter than 99% of the other storage investors out there.

Read the public reports of the storage REITs

There are six public REITs in the U.S., and you can obtain their annual reports free of charge. They are:

• CubeSmart. NYSE symbol CUBE
• Extra Space Storage. NYSE symbol EXR
• Global Self Storage. NASDAQ symbol SELF
• Life Storage. NYSE symbol LSI
• National Storage Affiliates. NYSE symbol NSA
• Public Storage. NYSE symbol PSA

These reports hold a huge amount of valuable information, including predictions on industry trends, a review of markets, and general operating information.

Immerse yourself in listings of properties for sale

There is no greater barometer of the supply and demand side of the business than the existing listings of properties for sale. You can start to see trends, the different cap rates between states and the metro size of the market, and get a rough idea of the basic price based on number of units. You may also find a jewel in those listings, and that might be your first deal. Find listings on two websites:

• www.SelfStorages.com
• www.Loopnet.com

Most of these listings have all the pertinent information listed on them, so you can look at a huge number of deals almost immediately.

Talk to industry brokers

You can learn a lot just from talking to specialist brokers who work just the self-storage industry. These may also turn out to be valuable contacts as you start to refine your search. Brokers work one-on-one with sellers and can give you a lot of great information on market trends, as well as specific market insights. You can find the list of these self-storage specific brokers – which total around 30 – on the broker tab at www.SelfStorages.com.

Talk to industry lenders

Well, actually, not lenders specifically, but industry loan brokers (also known as capital market consultants). These individuals make a living by matching borrowers with lenders, and are well versed in all financing requirements and the current options. Whether it’s bank debt, conduit debt, or agency debt, you will quickly know the standard terms and what to expect. One of the top industry loan brokers is Security Mortgage Group at (585) 422-0230.

Immerse yourself in all things self-storage

Google every possible article and news story concerning storage. Physically look at all available deals near where you live, just to get accustomed to the terms and what they look like. If you make it your hobby to know everything about the industry, you will soon find that you have a short learning curve and are a walking encyclopedia.

Conclusion

Warren Buffett was exactly right – knowledge is the most important ingredient in successful self-storage investing. All the answers you need are out there, you only have to put in some effort to obtain them.

The first self-storage facility in the U.S. was Lauderdale Storage, which opened in 1958. That was the year that Elvis got drafted, and the microchip was invented. However, self-storage did not really catch on for another decade. Why the delay? If the “4 Ds” (discussed above) are the drivers to demand, then the 1950’s had very few of them. The population in the U.S. was mostly young, jobs were plentiful, and divorce was very uncommon. But there was still a demand – particularly for simply storing all those material goods that Americans were accumulating in those exciting years of economic boom -- and the early pioneers of the industry made the best of it.