One of the unique benefits of self-storage investing is the superior collections method: the ability to auction off the contents of unpaid units. Shows such as Storage Wars are based on this concept, and an entire industry has sprung forth from the auction of unpaid units. However, there are some new options out there to potentially replace old-fashioned on-site auctions, and the #1 variant are on-line auctions. But is this the right choice for you? In this Self-Storage University podcast we’re going to review this concept in-depth and its discuss the advantages vs. disadvantages.
Episode 19: Should You Use An Online Auction On Unpaid Units? Transcript
Anyone who's seen the show Storage Wars know the unique collections feature of self storage is the ability to auction off units that go unpaid. This is Frank Rolfe, the Self Storage University Podcast. We're gonna be talking about not only auctioning those units, but a new concept that is circulating around, which is online auctions of unpaid self storage units. So let's talk for a minute what this means. Traditionally, like the show Storage Wars, if you had an unpaid unit and followed all the legal procedures, you would have an auction on a certain day, the door would be opened, with the lock cut, the door would be opened. People could look from the outside, not on the inside, and they could then make offers for the contents of the unit. And that money, whatever it is, goes to you for your unpaid rent.
It's a fairly strong collections method because people know if they don't pay their rent, ultimately their belonging, whatever they may be, may go to the hands of others. So recently, however, people are trying to bring, I don't know, eBay, Etsy, all rolled into one into the storage auction business, and basically what they do now is there are companies out there that will do self storage auctions. Effectively the same process, cutting the lock, opening the door, but done in a slightly different manner. Done online to the wide audience of the Internet. Now financially, typically these deals are on the front end free to use, but they're gonna take 10% of whatever the amount is of the auction. And so the person at the auction, the winner puts down 10% and then they must bring in the other 90% when they come to claim the items. It's a fairly simple process, nothing too unusual.
Your manager basically takes the photos, uploads the photos to their site. The average auction right now is getting about 30 views and the average sale is about $210. That's what things have been running with the auction sites I've talked to. There's about 130,000 bidders signed up on some of these online platforms, so it's not like there's a real shortage of bidders. But let's talk about the good and bad things to think about if you're considering doing your auctions online. Let's start with the benefits. The first one right now is, of course, it's COVID free. That's important in America. We're all still socially distanced, not sure when it ever ends. No one's talking yet about, "Hey, let's get rid of those masks." I don't know if it'll be this year. I don't think so. Will it be next year? Not even sure.
So when people can't get together, then a lot of people who were bidding at auctions on storage units are certainly probably not showing up now because of COVID concerns. Well, they can certainly show up online. So the first winning idea is that it's COVID free, right? Now, the next one is that it can reach a wider audience because it's not just the regular old people. If you watch the show Storage Wars, for example, you'll notice it's the same people that show up at almost every auction. Now, that show is a little rehearsed. Some say it's not even in any way accurate, or really truthful. But the bottom line is, of course, it is true, there are those people who for fun or for profit go to storage auctions, the same people over and over and over.
Online, however, introduces you to a new audience, a wider audience. Possibly people who never have gone before in person will in fact shop online. So that's a huge plus. Another one is, and this is a big one, it allows across-state bidding. Now, let's say for a minute, you've got a self storage unit that's in Austin, and you've got a potential buyer who is in Dallas. Well, they wouldn't drive three hours down to the auction, but they sure do do it online. And they can go down and pick it up, but they just wouldn't waste their time going down just for the bidding process, too much effort, too much time expended to potentially not come back with anything to show for what you did. So if they're gonna do it online, now you're able to reach not just somebody in Austin, but somebody across the entire state of Texas.
That's great, because now you've opened yourself up to a lot of bidders, some of which have more money than the locals would have. So the ability to hit across-state bidders, that's another huge one. Another is you're able to open the auction up longer than you can in person. An in-person auction is always just then. It's right there on the spot. You've seen Storage Wars. You know how it works. They open the door, everybody looks in it, and they make their offers immediately, and it's just the high bidder who wins. On an online auction, you can set it up, based on your state law, to go for longer than just momentarily, and you can... Might set it up for a week. Whatever the law allows.
Now, when you combine the ability to keep that action open longer and hitting a wider audience, yes, it may get you higher pricing. Now, no guarantee, you might not have the heated exchange of people who hate each other bidding against each other, but at the same time, you're gonna reach so many more people with such a longer time to come up with their ideas, their thoughts that you have every reason to believe you might attain a higher price online than you would in person, but yet there are some negatives to it. The first one, a big one is that you don't pay until you pick it up.
Now, let's think about this for a minute. Let's say you have that auction online, and let's say it's open for a week and at the end of the auction, you have your winning bid of $350. Well, they put down $35, so they owe you $315, but what if they don't show up, they don't give you that money until they're there to pick up the stuff. And you can set limitations of how long it is until they get there. But it's not gonna be overnight. It's gonna have to be a few days. And then what happens if they don't show up? Well, you'd say, "Well, golly jeepers, I got a little bit of money, $35, but that isn't really that great?" When you do it in person, of course, they pay right there on the spot, so you have the immediate gratification of knowing you got your money, so it's over, it's done. You have the auction on Saturday and you're paid on Saturday, and that's it.
However, when you go and do it on an online format, you don't have that immediate gratification, and I don't really think you have that much coverage because if 10%, many people could easily walk 10%. So at the end of the movie, that's one, one big complication is it's you're not gonna get that money, it's like, Show me the money, out of the movies, well, that no one's gonna be showing you the money, they're showing you an IOU that they'll pay you when they show up, but then the problem is, what if they don't show up? That IOU is then of course, valueless. Another problem you have is that there's no reserve in these online options, you don't know if anyone is really going to show up, right? So you can do all the right steps, put up your photos and all that stuff, but what do you do when you only get one person up and they bid a dollar. So that's also a little bit scary.
I know they say there's 130,000 bidders, but that's a nationwide. Look at that over all 50 states, it's not that many people. So you have to make sure if you get into it, you understand that there's every reason to believe, possibly, that you might hit the wrong day and nobody's making much of a bidding. But perhaps the most dangerous part of changing from in-person and to online auctions of contents is simply the fact that it is in fact pioneering. Now, we always hear good things about pioneering. You hear stories of Steve Jobs and Bill Gates, and yes, they were pioneers, but you don't hear about all them other millions of people who tried to do be Steve Jobs and go Bill Gate and got annihilated in the process. Because remember, there's inherent risk in being a pioneer.
When the pioneers took those wagon trains across the wide prairie, many of them didn't survive. Some did and were success stories, but the majority, they ran into problems. Their wagon wheels fell off, and there were attacks and all kinds of problems and cholera and disease, et cetera. So being a pioneer is little risky thing. And when you're going from something that's been very well established for decades now and moving from that platform into an online platform, you have to ask yourself, Is this really a smart move? Am I really gonna benefit enough that I wanna take the risk of doing something that most people are not doing? Because often pioneering isn't all that it's cut out to be. It's often much safer to take the old train on the old established train tracks than being the pioneer and going across the prairie in your wagon.
So what does it all mean? Should you do online auctions or should you not? Well, I don't have an answer. It's up to you and what you think you wanna do. However, I will tell you that kind of like on-screen big screen TVs at the big box retailer, you often don't wanna be the first person in the door. If you're not sure that you wanna do online options, there's certainly nothing wrong with that, you might want to take more of a wait and see approach. Or of course, you could try it out. You could test it a few times and just see what happens. Which works better? You know what your results are in person, well, why not try one using online and see how it compares. If you got better prices, if the people did show up and they paid you, then you might say, Well, I've done both, and after experimentation, I find that online works better for me. Or you may find that no, online really didn't work.
The key item is just raw experimentation, is the key to life. It was one of Sam Walton's great qualities. He would always try things to see if they would work, and he always thought that if you could try things and test them, then he could build a better company. There's an old story of Sam Walton walking across a Walmart store, and a young clerk came up to him and said, "Hey, Mr. Walton, how come we paint the walls in the store gray, they're really depressing." And he said, "Okay, well, what's your idea?" "Well, what if we painted it purple?" So he said, "Okay, here's what we'll do. If you think Purple sells better than gray, I'll do it, I'll give it a test. You take one department and you paint the wall in that department purple. And we'll measure the sales in that department for a month, and if purple works better, we'll paint more walls purple. And if purple sells less, we'll paint it back to gray." Well, did the experiment and purple didn't work, and they painted it back to gray.
But the important thing was here was Walton, way late in his career, this was after he was very, very well established, still thinking creatively, still trying to get the edge by experimentation. So experimentation is always good. That's why I need you to be aware of the online auction potential, the option, not saying you should do it, but it is out there, if that interests you. This is Frank Rolfe for the Self Storage University Podcast. Hope you enjoyed this. Talk to you again soon.