subject: How To Make A Great Deal On A Self-storage Facility During This U.s. Depression [print this page] While it's a given that we are in the midst of the biggest economic melt-down since the Great Depression, it's not a given that you have to suffer financially. Most of the great fortunes in U.S. history - such as the Kennedy's and the Hilton's - had their roots in the Great Depression of 1929. Whether you are a winner or a victim is how you play your hand. Here's how to play it properly in regards to self-storage facilities.
Learn what makes a self-storage facility tick.
Many people do not really understand what makes some self-storage facilities better than others - or even what makes them work at all. Self-storage is all about people placing goods in a secure area for a prolonged period of time. The key to that definition is "people". You need a lot of people to make a self-storage facility work. Something like 50,000 of them in a 3 mile radius. You can never make a facility work in an area that is too sparsely population - you've got to have plenty of people passing by to hit the kind of occupancy that a facility requires.
Another key to the self-storage game is being in a good market. Some markets are awash in vacancy due to the fact that the market is over-saturated, or has lousy demographics. Remember that it takes people with some degree of earning power to afford the monthly fee - or to even afford something worthy of storing. Great markets have many people living in apartments. Great markets have very high average annual earnings. Great markets are what you want when you buy a facility.
Learn how to determine a great deal from a bad deal.
Self-storage facilities, like all other real estate asset classes, are evaluated based on their net income, also known as EBITDA. EBITDA stands for "earnings before interest, taxes, depreciation and amortization" - basically, the true cash flow. And facilities are valued based on a rate of capitalization or "cap rate". So if you have a facility with an EBITDA of $100,000, then at a 10% cap rate, the value would be $1 million. A 10% cap rate is normally the target. If that same facility was priced at $2 million, then the deal would only be at a 5% cap rate, and not a good one to purchase.
Also important in the deal is the seller financing, if any. Since the real estate market's collapse a couple years ago, it has been tough - even impossible - to find the standard financing that most people had taken for granted for a decade. Today, seller financing is almost essential.
Get a high volume of deals under your belt.
You can amass quite a portfolio of deals by just cold calling or sending letters to facilities that interest you. Often, these sellers will be happy to talk with you, or might refer you on to another friend who is interested in selling.
To really succeed, you're going to want to have 10 to 20 deals that you are working on simultaneously. That's because so many deals die during due diligence. So really ramp up the volume of deals as hard as you can.
Consultative selling is essential.
Have you heard of the term "consultative selling "or "win/win deal making". Basically, it's a concept that a successful deal requires both the buyer and seller to walk away happy.
When you only seek out win/win deals, you also raise your closing ratio of deals you look at versus deals you get under contract. Why? Because sellers really appreciate the concept of both parties winning. Many times, the seller will give you a price reduction or better terms as they "bond" with you, and start to trust you.
Conclusion.
If you believe in the old adage "buy low and sell high", then this is the time to start that process with a low-cost distress deal. There's plenty of distressed self-storage facility deals out there. Shouldn't you grab one for you and your family?
