In this episode, Stacy Rossetti walks you through the essential steps of conducting a successful deal analysis for your next self-storage facility investment. She covers how to evaluate financial statements, research market demand, assess competition, and identify growth opportunities. You’ll have a solid understanding of how to conduct a comprehensive deal analysis for a self-storage facility. You’ll be equipped with the tools and knowledge you need to make an informed investment decision and set your facility up for long-term success. So, let’s dive in!
Connect with Stacy Rossetti here: www.stacyrossetti.com
—
Watch the episode here
Listen to the podcast here
How To Run Deal Analysis, Evaluate Financial Statements, And Identify Growth Opportunities For Self-Storage Facilities
The Beacon Storage
This is the facility that we closed on. It’s called Beacon Storage. It hasn’t been changed yet. It’s at 201 East Main Street in Leesburg, Florida. Look at this Google page. What is missing? We have talked about this before. You look at Google Maps and pull up the storage facility. What is going on here? First of all, you can see Beacon Storage. It does not have a website. There is no website. That’s not on here.
They’re open from 9:00 to 5:00 Monday through Friday, 10:00 to 2:00 on Saturday, and closed on Sundays. This is an indoor climate-controlled facility. Couldn’t you be open from 7:00 in the morning until 10:00 at night or something? Why would you only be open from 9:00 to 5:00 Monday through Friday, and then 10:00 to 2:00 on Saturday? When I see that, I’m thinking, “That does not sound normal.”
You can see it on Google Maps. Here is the facility. It’s a massive building. It’s got storage and then also commercial space. There’s a big open-space park. They’re building some stuff here. I’m not 100% sure what they’re doing here. This right here is Beacon College. This is a very famous college for disabled people. People from all over the world bring their kids to this university. It’s special for disabled people.
This is Downtown Leesburg. This is Main Street. Leesburg is the next street after The Villages in Florida. If you heard of The Villages, The Villages is where a lot of old people go, retire, chill out, and do their thing, or whatever you do in Florida. The Villages is the retirement community. The Villages is booming. When you drive through The Villages, you see nothing but construction everywhere if anybody knows what I’m talking about. It’s the 44. There’s a lot of construction going on.
I’ve driven through here several times. You can tell me if you know. There’s so much construction going on. I would honestly consider this area a secondary market, but it’s going to become a primary market. I would call it a sub-primary market, which is North of Orlando. Everybody knows Orlando is booming. It’s growing up in this area. With traffic, from Orlando to Leesburg, it takes about 45 minutes. Without traffic, it’s probably around 30 minutes. There’s always a lot of traffic because it’s crazy up there.
This is where we’re at. I was going to show you the satellite imagery. This is the Main Street. We always drive. When we come in, we drive on the Main Street. That’s how we get here. We go over to the 75 because I live in Tallahassee. It’s about a three-and-a-half-hour drive from Tallahassee. They’re building out this Main Street area. It’s a very cute street. It’s walkable. This whole area right here is where the university is and everything. This is super walkable.
They’re making this Main Street a whole bunch of shops, restaurants, bars, and stuff like that. It’s a cute area. We happen to find this facility and started looking at it. This can be a very good buy-and-hold. Am I going to buy and hold it? Maybe. Probably not, but I’ll tell you my thought process on this. The property comes out to right here, but there’s this half of it, and then there’s another half owned by the Ross family.
This whole area could be considered parking. They’re not doing anything at all to this. It’s empty. This part of the building is commercial space. There’s an office and a guy that does Penske Truck Rentals. When people come into the storage, he offers them to rent a truck to move and stuff like this. He has been there for years. He has maybe three Penske trucks that take up a little bit of space. There’s a little bit of parking here, and then there’s a little storage area here, but all the rest is open parking.
We’re going to try to figure out what we’re going to do with that. That was not included in our numbers. We did not put this area right here into our numbers at all. We only looked at the commercial space and the storage. That’s how we did it. This will be a bonus. This space right here has been converted to boat storage. Somebody bought that piece of property. They store boats there. This area is a huge boating community. This is also boat storage.
Somebody bought this piece of property. They do boat storage, but they stack the boats up. When they’re not being used, they stack them up. That’s what they’re doing. Boat storage is going to be something that we’re going to consider and look at. We’re going to try to figure out something in that area, but for the numbers I’m going to show you, that was not included. That’s going to be an added bonus, whatever we figure out we’re going to do.
You could see Paulling’s Outdoor Storage Lot. There is parking going on there. We could do more parking if we wanted. This is what the building looks like. I wanted to show you pictures of this too. What I did is I went to Crexi. If you don’t know Crexi, it is the online portal where realtors list properties for sale, but another thing about Crexi is that it holds any commercial property that has ever been sold since the 1960s. It will give you that information. Although this property came from a realtor, you can find any property that you want in Crexi. All you have to do is type in the address.
This property was sold on December 27th, 2021 for $625,000. This is what it looks like still. The owners did nothing. This is considered a severely mismanaged property. They bought it. The thing is the person that bought this lives in New York. They bought it with the intention of buying it and fixing up a mismanaged property, but in the end, they didn’t do anything to this property. I’ll tell you the story, but I wanted to show you what it looks like.
On Crexi, you can find all the information about any property that you want. You click on the property and the address, and it gives you this type of information. You could see the number of units. There are 179. It has 12,213 square feet. It was built in 1952. You can look at it and see what it has. The asking price is $2.6 million. The selling price is $625,000. This is where they’re at. This is what we bought.
Let me go to the Deal Analyzer. I wanted to show you pictures of the inside. They’re not very good pictures. I am horrible at taking pictures because I’m always looking and talking to everybody and stuff. To give you an idea, this is what it looks like on the inside. It’s a very nice storage facility inside. You can see how it’s all built out. It’s brand new. They built this out and put the storage units there. It looks new. On top, there are some boxes and stuff.
It’s got two levels of units. There’s an elevator that you can get in. I didn’t take good pictures of it, but here’s the little freight elevator. Here are the AC units. Everything inside is brand new. It is a very nice facility. It’s all climate controlled. The issue is they could not get it filled up. They hired a manager to manage it, and he was not good. He was not getting people in. He wasn’t good at managing it.
That’s number one. Number two, there’s no website. They ended up finally getting a website, but it was late in the game. Number three is the hours of operation when that manager could be there to open the door and then lock the door. If you have a climate-controlled building like this, you need to have 24/7 access. If you don’t want to do 24/7, at least 6:00 in the morning until 10:00 at night or something like this.
You could always monitor to see when people come in. You should have cameras, a keypad, and a system for letting people in if they have their code and stuff like this. That’s how you should do it, but they never set any of this up. There are no cameras or keypads. The owner did not want to spend any money on this at all outside of the units here.
The Numbers, The Deal Analyzer
I wanted to show you that. This is on the inside. You have an idea of what it looks like. I want to go over the numbers with you. What are your thoughts on numbers? Would you buy something like this? I would love to hear what you’re thinking about this. This is the numbers. This is my Deal Analyzer. You can go to the website if you want. If you need a way to run numbers, this Deal Analyzer is awesome. The reason why is that it allows creative deal structures. There’s no deal analyzer out there that helps you with coming up with creative deal structures.
I like to do owner-financing offers. On every deal, I always offer owner financing. This page right here is the info tab. This is your input. The question is this. When you talk to owners, what’s the information that you need to run numbers? I talked about this. You have to remember the difference between talking to a realtor and getting the information from a realtor or going to an owner and getting the information from an owner.
A lot of times, the owners do not have all their data and stuff. They don’t have P&Ls, balance sheets, and stuff like that ready. They can get those ready. It takes a couple of weeks to get those ready, but you need to have numbers to run a quick deal analysis. When you talk to the owners, you’re going to be asking the owner for their annual income, the number of units, the total square footage, and then their economic vacancy. This is physical occupancy. You don’t have to ask, but you can ask for property taxes. You can find yourself the utilities and insurance.
On my Deal Analyzer, those are populated formulas. You can figure it out. You don’t even have to ask the owners for this. You can figure out what the property taxes are and what the insurance is. For insurance, our formula is the max times 1,200, and then 12 times C13. That’s how we run our numbers. We have an idea. We put the formula for the property taxes right in there as well. We look at the average millage rate for property taxes so we can run that formula. Utilities as well is a formula.
These are our expenses. We don’t ask the owner for their expenses because their expenses are not going to be our expenses. A lot of times, owners are managing everything themselves. They’re as lean as they possibly can so they can save every penny and everything like this, which is what you’re supposed to do, but we don’t go to our facilities and manage our facilities. We have people that do that for us. We have boots on the ground and things like that.
That is where property maintenance, staffing, software, merchant fees, and marketing all come into play. You can ask them what their expenses are and look at what their expenses are, but you need to know what your expenses are going to be. In our Deal Analyzer, these expenses are a formula as well because we know what our expenses are. We use a formula for that.
You can always come in and override all this if you want to, but we keep this. I tell all my students, “Keep this because this is where it’s going to be. It might be a little bit less, but it’s going to be there.” You can see the mortgage payment is automatically populated. This is your inputs tab. When we look at our deals, we look at three ways of analyzing the deal. We look at the Current, the Potential, and the After Updates, which are as is now. What is the value of the facility? What is it doing now? That’s Current.
Potential is like, “Is it a mismanaged facility or not?” If it’s mismanaged, Potential means, “Can you get it from 50% full to 8% full.” That’s what we call Potential, “Is there potential in the deal? Can we get it from not full to full?” The third way we look at the deal is what we call After Updates, which is the opportunity. What is the opportunity in the deal? What can we do? Can we increase the units in the square footage? That’s number one. Number two, can we increase the price per square foot? The question is, “What can we take this number to?” That’s how we evaluate our three deals.
You can see here that once you put the inputs in, it already shows you what the valuation of the property is. When we bought it, it was making $108,000. It’s making around $9,000 a month. We put in $108,000. After we started looking at the number of units, we figured out that there are 143 doors and a little bit over 10,000 square feet. There are some big open areas where you can add more units, but we did not do that. We did not add that in. We looked at this. This is what it’s offering.
We also looked at how it’s 50% full. When you are running numbers, you do not want to add commercial office space into this. The total amount of the building is 25,000 square feet. You’re not going to put 25,000 square feet, plus the square footage of the storage, plus the office space because what that does is skews the numbers. It will skew your price per square foot. We separate all incomes.
Office space is looked at differently because the price for office space is different than the price per square foot for storage. We have Current, Potential, and After Updates. We have three tabs. We have the Current, the Potential, and After Updates. That is where we’re analyzing all the separate types of incomes. We can undo this, and then I can say the Current.
It’s 143 units. The price per unit is about $125. It’s 50% vacant. There’s no management fee. The purchase price is $2.5 million. The valuation comes out to $282,000 the way that it is without any other income or anything like that because it’s only making $108,000. We’re negative $2.2 million in equity. The NOI comes out to $19,000. This is what the numbers look like.
The gross potential rents for the storage are $216,000. This does not include any other income or any commercial space. This does not include the parking space outside or anything like that. It’s as is. If we filled that storage facility up, we should be making around $216,000. Remember, it’s making $108,000, and it’s 50% full. That’s the income. The effective gross income is $108,000 because of the vacancy.
You can see all of our expenses here. The insurance, the property taxes, the maintenance, the utilities, the staffing, any management fees, software marketing, and the mortgage payment are all right here. Another thing I didn’t point out on this Deal Analyzer is that you can toggle between four different deals. I could toggle into a cash offer and then three creative deal structures.
If I was wearing the numbers for a cash offer, I could look at the numbers and see what that is. What’s your cash-on-cash return? What are all the numbers for that? There are five different ways to run numbers on the Deal Analyzer. You can toggle between each one of these on the Deal Analyzer. You can see the cash offer was $2.4 million, and the owner financing offers were also at $2.4 million. We offered three owner financing and then ran the numbers at bank financing. If we were going to go to a bank, what would the numbers look like? That’s how this looks.
Creative Deal Structuring
What happened is we ran the numbers in five different ways. We presented the offer letter. It was presented in four different offers. This is what we call the magic letter. When we talk to the realtor, this is what we went through, “We’re going to have to owner finance this thing. No bank is going to finance it because it’s not worth what they’re asking.” When you’re seeing something that’s not worth what they’re asking, then your mind should be like, “We can still get this deal done, but how can we get it done?” That’s where creative deal structuring comes in.
Come up with a whole bunch of different scenarios to get the deal to work. The scenario that we came up with and what the owners ended up accepting was a $2.4 million asking price with 30% down, 5% interest, and an interest-only loan for two years. It’s a two-year interest-only loan. You could see the numbers here. The loan amount comes out to $1.68 million.
We’re borrowing $1.68 million from the owners. They’re going to put the lien on the property. They’re lending us that money. We’re going to pay the 5% interest on that money. We have to put $720,000 down. The monthly payment is $7,000 a month. We are doing interest-only payments for two years at $7,000 a month. That’s what we’re doing.
You can see here that the targeted cash-on-cash return is 10%. Ten percent is a great number for cash-on-cash. Our goal is to get a 10% cash-on-cash return or more. This deal ends up being a 35% cash-on-cash return. Remember, we have two years to stabilize this property. In two years, what could we do? We could refi out in two years or sell the property in two years.
Honestly, running the numbers at selling the property in two years gets you a ridiculous IRR. It gets you a 100% IRR. I’m going to shoot for trying to stabilize this property in two years and sell it if I can’t stabilize it and get it to the return that I want. The return that I want is $5.5 million. That is where my goal is. I’m taking it from 50% full, filling it up, getting the commercial real estate filled in, and getting the money. We could either refi it out in two years or sell it.
Remember, I put this facility into my fund. This is in the Self Storage Fund of America. What is the goal of an investor that puts money into their fund? To get their money back as fast as possible. That is what I’m thinking about, “How can I get at least the money that they put in back as fast as possible?” That’s why I’m thinking, “If I can stabilize this thing in two years, why not sell this one and give them their money back?”
What is the goal of an investor who puts money into their fund? To get their money back as fast as possible. Click To Tweet$5.4 million is our goal. By taking it from 50% full to 92% full, I take the value of this property to $3.3 million. By filling up the storage, I’m taking it to $3.3 million because you can check on the current and then also go to the valuation potential. You can see the potential for this. The other income is $126,000. The commercial property is already making $126,000. The office got rented out. The office is paying $9,000 a month for the front space. You remember where the ugly windows were. That is a whole office space. They rented that out for $9,000 a month.
On top of that, there are three other spaces. There are 3 or 4 spaces that you can rent out. One of them is being rented out for $700. It’s a tiny office. It’s rented out for $700 a month. There are three other potential spaces that could be rented out, but the main thing is that the office space is $9,000 a month. That’s what we calculated. The tenant moved in, which is good. One of my stipulations is that the tenant needed to be moved in. We started talking to these people. They had gotten a tenant to sign the lease. They were doing some renovations and stuff like this.
I said, “We will close on the property once the renovations are done and the tenant has moved in.” It’s $9,000. That’s another $108,000. There’s a $700 a month one that we calculated and added into as well or something like that. That’s where we came up with $125,000. It’s making $108,000 for the storage, plus $126,000 for the commercial space. We’re at $226,000. We should be making $342,000. That is not including the outside space. We did not include that in the numbers at all because we’re not 100% sure what we’re going to do with that. We’re going to figure it out, look around, and see what the best thing is to do with that outdoor space.
We are on the path to making $126,000 plus $108,000. You have to minus the vacancy. This is where you’re getting it full as well. You’re taking it from potential to full. You can see the vacancy is deducted by $17,000. That’s it. An 8% vacancy equates to $17,000. That’s deducted. You can see $342,000 minus $324,000. Our NOI after our expenses is $236,000. Notice our expenses include $88,000 for the mortgage. That’s how you get the $236,000.
That’s Potential, which means we added the commercial space, taking it from 50% full to 100% full. You see how I’m breaking down the scenarios. We do that in the Deal Analyzer. You can look at several different types of scenarios. The Current, Potential, and After Updates are three different types of scenarios. The financing input is the four different types of offers or ways that you could make offers, run your numbers, and do things. That’s how it’s broken up.
Let’s go back to the info page. We came up with $3 a square foot. In Leesburg, there are only four other storage facilities that do climate control. That’s it. We think we did a 2 or 3-mile radius. We didn’t go too far out, but we did go out because there’s no competition within a mile radius. All of our competition is past a mile up to three miles. We’re very centrally located.
A lot of the tenants are students. It’s funny. It’s very interesting. If you’re a student, you don’t want a huge 10×20 unit because you can’t afford that. You want a 5×5 or a 5×10 unit. Think about that. A lot of our units are the smaller units. You have to remember that smaller units have a better price per square foot than bigger units. You have to think about that too when you run your numbers. Pete said, “As soon as we buy this thing, we are making more 5×5 and 5×10 units.”
When we were talking to the manager, he was saying that they don’t have enough 5×5 and 5×10 units for all of the students. A lot of those units that are not being rented are 10×10s and 10×20s because the market doesn’t call for bigger units. When the market doesn’t call for bigger units, as the owner, you have to put that into perspective and see what you can do to fit what the market needs are because a lot of those units from Beacon College come over. Whatever can’t fit into their tiny dorm room is going into this little storage area. We need to be thinking about that.
When the market doesn't call for bigger units, as the owner, you have to put that into perspective and see what you can do to fit the market's needs. Click To TweetPete is like, “I’m going to get in there and switch around units and stuff like that. I’ll bring some people in, and we will figure this out.” He’s one of those types of people. My husband will get in there and fix stuff. You can see here this $3. We’re not adding any units. It’s 143 units. It’s 10,200. The thing is you saw it on the listing. He said it has 179 doors. There are no 179 doors. There are 143 doors.
He got that information from the owner and the manager. The owner and the manager have no idea what the heck they’re doing. We had to get in there. It took forever for us. Pete had to go down there, measure everything out, get all the doors, get the square footage, and figure everything out. That’s when we came up with the 143 and the 10,234.
We got all the data from the owners because they started using U-Haul, which is one of the platforms that you could use for storage. They have a storage platform that you could use. They gave us the rent roll, and it was screwed up. They had to work through all this stuff. When you buy a mismanaged facility, that’s what you have to work through.
In the end, we ended up doing what we call the competitive analysis where you could see the four storage facilities. You could see one is 0.7 miles away. One is 1.2, 2.5, and 4.8. There’s not a lot of climate control within a five-mile radius. There are five facilities within a five-mile radius for climate control, which is very good for us. That means that we have a little bit of an advantage on that.
What we do is we call all the facilities and then try to figure out what we’re charging versus what everybody else is charging. You can see all the prices here. We compare them apples to apples and then do the price per unit and the price per square foot. There’s a unit mixed tab. Look at how many units and how many sizes they have. They have a lot of different sizes. You go in, look at every single size, put it down, figure out what’s the total square footage and then what their prices are, and then look through and see what the market rate is and this kind of stuff.
That’s how we came up with $5.4 million. It’s based on what the competition is charging and what we can charge. That’s where we’re at. That’s the deal analysis. This sheet here is available online if you want to purchase it. What I wanted to do fast is go through. This is the valuation page. These are the terms that we got. As you can see, we’re on owner financing.
You can see the Current. The cash-on-cash return is negative. We’re negative, but then once we get it to the Potential and the opportunity, you will have around $40,000 of income. We already have $20,000 of income. There’s $20,000 of income. We’re going to double the income by getting it filled up and then increasing the rates. We calculate $40,000 in income. Operating expenses are only going to cost us about so much minus the mortgage, which makes it a 35% cash-on-cash return.
That’s the Deal Analysis. That is the deal that we got. We got an owner financed. It’s $7,000 a month for two years. What happened too is very interesting because the people that owned this or the ones that bought it were also getting the deal owner financed. We’ve got to pay off the loan that we have, and because of that, we need to have X amount of cash and stuff.
The thing is they owed $700,000. They’re $600,000 or something because they paid cash, and they hadn’t paid anything down. They owed $600,000. In the end, we told them that we would give them $700,000 down, but what we would do is assume the first mortgage loan. That’s what happened. We convinced the owners to do an assumption on the first loan and took out the second loan. It’s a $550,000 assumption, and then it’s also a $1.2 million loan from the owners or something like that.
We have two mortgages on this property. We have one which is the assumption. The owners allowed us to assume that loan. The second is the main one with $1.2 million from the second owner, which is super creative. The good thing now is that we only have to come up with $7,000 over the course of the next couple of years every month to pay them. We’re going to do two separate loans. It’s two separate mortgages. It’s a couple of thousand dollars for one, and then it goes to the other. That’s it. It’s two different loans on the property plus $700,000 down. I have two years to stabilize this property.
Hopefully, I can sell it in two years and then give all my investors the money back, but if not, then I could always take out a loan and then refi it. We could hold onto the property if I need another year or something like that. We will see what it is. We did a wraparound mortgage or something like that. It’s not a wraparound mortgage. We assumed the loan, but think about it in terms of that. You can do wraparound mortgages. You can assume loans if the owner will allow you to assume the loan. The owner could do a second on the back end if they want. There are all kinds of creative deals.
What The Analyzer Is For
That is what this analyzer is for. It’s to help you run numbers and to come up with a lot of different types of offers that you can offer. If you decide to get the Deal Analyzer, there’s a whole bunch of videos that go along with it. If you are interested in learning how to do structures like this, which I highly recommend because it is not impossible but very difficult to buy a property with bank loans, you should consider joining Storage Nerds and coming to the boot camp, which is coming up.
I will spend two full days talking about assumptions, wraps, owner financing, taking a second, and raising capital for deals because I raised $700,000 to put down. I raised that money. I will talk about that as well. How am I raising money? I don’t put any money into any of my bills hardly ever. I use everybody else’s money. Everything I do is online. Storage Nerds and the coaching program is all online. I will hold your hand and walk you through all that as well. Go to StorageNerds.com for that and check it out.
If you want my course, go to StacyRossetti.com. You can go to StorageNerds.com. The Deal Analyzer is at StorageNerds.com. Everything is right there. I’m going to hop off fast and go to my pitch. It’s StacyRossetti.com/fund. If you’re interested in putting money into my fund, you could be part of deals like this and see how I’m doing everything passively as well. Take care. I will see you.
