In today’s dynamic real estate landscape, self-storage facilities have emerged as a lucrative and resilient investment opportunity. Whether you’re a seasoned investor or just starting, understanding the key milestones involved in self-storage investing is crucial for success.
Join us as we delve into a comprehensive discussion on self-storage investing milestones, providing you with a step-by-step guide to navigate the process effectively. In this insightful podcast episode, we’ll explore the fundamentals of self-storage investing, equipping you with the knowledge to make informed decisions. Join Stacey Rossetti in uncovering the essentials of Self-Storage Investing.
—
Watch the episode here
Listen to the podcast here
Self-Storage Investing Milestones: How To Get Started, Step-by-Step
I want to talk about the stages of investing in self-storage and getting started in self-storage because you guys are all here to learn. We have a storage facility in Clarksville. It’s called Cherry Station Self-Storage. If you can go by and take a look at it, we put all new gravel down. We put a couple of new gates in. We’re about to put the signs up because we bought this facility. We basically graded it and graveled it because it was bad. There were a lot of auctions because it was a severely mismanaged facility. We did a lot of auctions, increased the rates, and put new fencing and gates in to the facility.
Finding A Facility
If you want to drive by, you’re more than welcome to. It’s called Cherry Station Self-Storage. Check it out. We’re going to talk about the stages. I want to get you guys in and get started. I talk about this quite often. You have four stages to getting started in self-storage investing. The first stage is where most of you are on this session, which is, “I need to find a facility that I can buy. I need to get it under contract.” In stage one, the goal is to get a storage facility under contract.
This stage of all the stages is the hardest stage. This is the stage where most people give up on. I want you to know that what I’m going to show you for stage one is the hardest part of the whole process. Once you get a storage facility under contract, then what you have to do is you get a funding. If it’s a good deal, you’ll be able to find funding. It’s a little bit trickier nowadays because the market is a little bit more difficult. I have a student that’s closing on a storage facility. She got an owner-financed. I have another students closing on a facility. It’s a $2.3 million facility and he’s getting it financed with an SBA loan. I’m seeing deals getting funded. If it’s a good deal, it’ll be able to get funded.
Everybody always thinks this is the hardest part. The truth of the matter is getting it under contract is the hardest part because it takes the most amount of effort to be able to get something under contract because it’s just a numbers game. That’s it. Once you get the facility under contract, you’re like, “How am I going to fund this thing?” All the while that you’re trying to get the funding, what you’re also doing is onboarding your facility.
Onboarding means you are buying a business. As somebody that wants to get into self-storage investing, you’re buying a business. Although you’re buying a piece of property, you’re really buying a business, honestly. A lot of people think, “It’s real estate investing.” The truth of the matter is your business is only as valuable as how you manage the property, how you set up your systems, your automations, treat your tenants, and take your payments. All of the things that you need in order to be able to have a successful business needs to be set up before you even buy them.
Set up everything you need to have a successful business before buying them. Click To TweetBefore you buy them, you have to start setting all this stuff up. You got to start thinking ahead to the future. In stage two, you’re thinking, “What are my goals for this facility, for myself, and my storage goals?” One of the things that you’re doing in stage two is you’re trying to figure out what software you want. You can’t just go and get the cheapest software and be like, “I’m going to get the cheapest software.” The cheapest is not the best.
Figuring Out Your Software
A lot of times, it’s not the best for what your goals are. If you’re the type of person that maybe only wants to buy one storage facility, you’re only going to ever buy facilities and some tertiary markets, and you’re only ever going to buy 50 units or less, maybe cheap is the way you want to go, but if you’re planting on growing your portfolio or make this truly passive income where you’re not having to do as much work as possible, you need to do a lot of demos on every single property management software out there.
You need to make sure that you’re picking the right one that you’re going to be able to grow with as you grow, automate, and systematize your facility. Nobody told me that when I started getting in self-storage investing. Nobody was specific about that. Nobody was teaching it anyway. There’s a whole bunch of people teaching now. I went out. Luckily, back when I got started years ago, there were only three property management software on the market.
I did demos for all three of those software. Luckily, I picked a software that is growing and becoming probably one of the best software on the market. It’s also one of the most expensive software on the market. I use storEDGE. I’ve seen the changes of how storEDGE has developed into this enterprise solution. Along the way, I had to go through those chronic those growing pains with storEDGE. Also, the price increases.
storEDGE now automates and systematizes everything that you can think of and need to be able to do in order to run your business and make it as passive as you possibly can. storEDGE does that, but a lot of the software’s don’t do that, but then they come at cheaper prices. You have to do a demo and say, “Do I want to pay X amount of dollars or am I okay with not doing those things and automating them and I do them?” It’s a lot of thought process going behind which software that you’re going to pick.
Storage now automates and systematizes everything that you can think of that you would need to run your business and make it passive. Click To TweetSwitching a software over once you own a facility is horrible. You don’t want to go through that process. A lot of people do that. They start with one and they switch over. You lose a lot of tenants in the long run when you do that. The main reason that this is so important in the onboarding phase is because you need to be able to take payments.
The only way that you’re going to make money is if you can take payments. When you get a facility under contract, your first thought is, “On day one, I need to be able to take payments for the storage facility. What do I need to do in order to be able to take payments?” When I switch over to flip the switch and the other owner says like, “I know longer own this property. Call Stacy,” you have to be ready for that.
The truth of the matter is that nobody told me that when I got started investing in self-storage. Nobody told me on my first facility that I need to be able to take payments on day one. Honestly, we did not do anything. We did not do any of this. It took us months to get our software set up because the onboarding process for software does take forever.
Transferring Ownership
It takes a long time. You want to make sure you’re planning that while you have the facility under contract and not a week before you close and be like, “I don’t have software,” which I’ve seen done many times. Funding, onboarding, and getting your software set up. I’m not going to go all deep into this, but that’s what stage two is. Stage three is you own the property. You’re transferring ownership. You have the software set up, but your tenants have to get into your software. You know how it is where you go and you set up your account. You got to put your credit card information. The software companies put the basics in, but they can’t put credit card information in. You can’t transfer credit card information and even contracts a lot of times.
You can’t transfer because you have to get your own new contract signed. In this stage, you’re getting your merchant’s account, your software, and your contract ready so that when you own the property, you’re able to say to your tenants, “Please go on to your account and sign your contract. Put your information and credit card information, and that’s it. We’re done.” The easier that you can make this process, the better.
The less of a chance you will lose tenants. If it’s a complicated process, where you’re having to walk tenants through and you’re pissing them off, most likely, you’re going to lose a lot of tenants. That’s stage 2 and stage 3. At this stage, you’re under contract for anywhere from 60 to 120 days. Depending on how big your facility is, it takes you anywhere from 60 to 120 days to stabilize and get everybody into the system.
I’m telling you also the time frame of how long this is going to take for you to achieve this goal. Remember, I told you at the very beginning of the discussion that my philosophy in life is that I do everything super slow. It looks like I’m fast and getting stuff done but the truth is, slow and steady wins the race. This is a huge philosophy in our household. I tell this to my daughter Lillian all the time. She and I talk about this, like, “Everything’s a process. It takes a long time, but as long as you keep moving forward and you’re creating momentum or doing everything that you need to do. It’s going to be good.”
You’re just seeing years of me being slow and steady. You may be starting now and thinking, “How the heck did Stacy do all this in years?” It’s me taking micro steps or baby steps. My coach calls it micro steps. It’s like baby steps. I’m always moving forward, working on all my projects, and doing the things that I need to do in order to achieve the goal that may take years to achieve, like my book.
Automating System Size
Automating and systematizing are stage four. This is after you’ve owned your facility for 60 days to 120 days, depending on how big it is. You’ve got your tenants in the system. You’re getting the hang of how it’s working. You’ve got your maintenance stuff done. You got your phones figured it out, and now you’re like, “How can I make this truly passive income? How can I make it so that I don’t have to do all the work? How can I make it so that I can increase my tenants and vacancy?” Maybe add on or expand.
You’re thinking about the future at this stage. This is for 60 to 120 days after you own the facility and transfer the ownership. You’re like, “I feel like I can look for another facility. I feel like I’ve got things under control. Let me dig into the software that I picked and utilize everything in the software that they have to offer. I want to make sure that I’m utilizing the reports. I want to make sure that I’m realizing the accounting. I want to make sure my auction processes are being done correctly. I want to make sure that I’ve got dynamic pricing and yield management. I want to make sure that I’m doing what I need to be doing in order to always keep my occupancy up and my marketing is doing very well. How can I truly automate all this stuff?”
That’s what’s happening in this time period after you own your facility. After you’re in this area, you’re also thinking, “Let me maybe start looking for another facility.” You can see that if you’re doing 60 to 120 days per stage. You could be two years for one facility to getting to the point where you feel like you could buy another one. I tell my students, “Your goal is one facility.” Some people buy more than one facility, but I’m going to tell you I had one student bought four facilities in one year. One student bought three. Another one bought four, and it was utter chaos for them.
I kept saying, work on the facilities that you have. The truth is, unless you have a big setup and a true asset management team, even if we bought four facilities in the past year and my husband is running around like a crazy person, Even though we know what we’re doing, we’re still trying to figure everything out. Let’s say slow and steady wins the race. Personally, we bought one facility. We realize that we love storage. The next year, we bought another facility.
After that, we bought two facilities then we bought three facilities. It had around seven facilities, and I was going to buy 8, 9, and 10 the next year. I had one owner with three facilities, and on the day before the closing, he backed out. I didn’t get to buy those facilities. I was so upset because I’d worked so hard to raise the money, get the funding, and have everything all ready. He got cold feet and backed out. That year, I didn’t buy anything.
The next year, I was like, “That’s it. We’re buying a lot of facilities.” That’s when I started buying about four, then we bought another four. My husband was like, “That’s it. We need to stabilize these properties. We need to get good at managing these properties.” That’s how the thought process for us internally works, and if you’re thinking to yourself, “For 2024, I’m going to buy four properties.” You have to realize.
Stage one is where you’re getting a facility under contract. Stages 2, 3, and 4 are the bulk of your owning a storage facility. Most people do not get past the funding part. They think about the findings and the funding. The finding is a little sliver of the entire process of getting into self-storage investing. Your onboarding, ownership, and automation are going to take up a year, if not years, of you owning this facility.
Hopefully, that gives you some insight into how the whole process goes. This is how I teach all my students. This is the process that I see my students doing. That’s how I came up with the stages. I did not realize that I was going through these stages and until I started teaching. That’s how I came up with this process. Let’s get into stage one a little bit. Let’s dive deeper into that so you guys know what my next steps are. I’m in stage one. What do I need to be doing now? Let’s do that.
Stage one is educating yourself on how the whole process works. You’re reading this episode. You bought my course and the deal analyzer. You are ready to educate yourself and get into this industry. That’s step one, education. Give yourself some time to learn how this industry works. The real steps so that you can put an offer in the way that I teach, you want to build a list of owners in the areas that you’re interested in.
You don’t have to be interested in an area that’s near you. You don’t have to be interested in the area where you live. What you need to do is figure out what areas you are interested in. I’m going to tell you pretty much any area that you’re interested in is going to be fine for storage. I have students buying all over the country. Any area is going to be fine. Whatever area you’re interested in as long as it’s stable or growing.
In a lot of smaller tertiary or subtertiary markets, there is a little bit of debt. You’ll always see a decline at maybe 1%. For instance, one of my virtual assistants found a storage facility in a little tiny town in Kentucky. There are about 385 people in that town. When you look at the demographics, you see a town of 385 people. You’re like, “Do I want to buy a storage facility there?” The declining population is like 1%. If you have 385 people and 1% leave. How many people are leaving? Three. You have to look at the history of that town. Has it always been 300?
If you look at the history from like 1900 or 1950 to like 2000s? It’s always been like a couple of hundred people. It’s a little tiny town in the middle of Kentucky. It’s super old school, and there are one or two storage facilities there. Now, questions are like, “Should I buy a storage facility in this area?” I own a facility in a tiny little town in Georgia, and it has 60 units. It’s full. I bought it for $100,000. It’s probably worth about $350,000. I’m going to make $250,000 Grand on it, and I haven’t been to that facility in years.
The lawn person that mows the lawn is also the boots-on-the-ground person who takes care of everything else. He handles everything. For we do not do anything in this facility except go once or twice a year to check on it, and our phone person takes new tenants when needed. It’s like, for $200,000 or $250,000, what’s the big deal? I don’t know. I work way harder on bigger facilities, making more money than I do on that little tiny facility.
Also, what you want to look at is the radius and the population radius. The town that we’re in has maybe 300 or 400 people, but the radius in a five-mile radius is like 6,000 people, and in a ten-mile radius, it is like 12,000 or 13,000 people. Honestly, there are only a few storage facilities in that area. There’s not a lot of competition. We’re the only store facility in that town. With a twelve-mile radius, there’s maybe a handful, like 3 or 4, and that’s it.
All these 12,000 people don’t have a lot of options to go to that’s why we’re full. I keep saying tertiary, but I want you to know it’s primary, secondary, and tertiary. Tertiary means country. It’s in the middle of the country. It’s not in a secondary market. A secondary market is a town that stands all by itself that’s not like a major city.
The primary market is the major cities in your state and all of the suburbs that go with those. For instance, we own a facility in Fayetteville, Georgia, which is a suburb of Atlanta. That is a primary market, even though Fayetteville only has maybe 40,000 people in it. It’s still considered a primary market. That’s what I’m talking about primary, secondary, and tertiary markets.
You want to know if these areas are stable or growing or in a tertiary market, if it’s declining what does the declining market look like in a ten mile radius? When you’re looking at facilities in the area, that’s where you want to look at. How much competition within a ten-mile radius for the tertiary markets. The secondary market would be maybe anywhere from 1 to 5 miles depending where is it in the secondary market.
For instance, we own a facility in Valdosta. Valdosta has 75,000 people. It’s a big city. It’s a big town, but it’s not primary market. There’s one CubeSmart downtown and that’s it. All the rest are bigger players, but they play the secondary market. We’re looking at every facility in that city as a competition because there’s not a lot. I can look at like 10 or 15 competitors to see what they’re all charging and stuff.
This primary market is typically going to be less than one mile. Depends on the location, but you want to figure out what location that you want to be in. Unless you can afford $3 million plus. You don’t want to be in a primary market. If you can afford $3 million or less then you can search the secondary market but if you can’t afford a million dollars or less then you should not be in secondary markets. Secondary markets are expensive markets. You figure out what markets you want to be in and this is where you start building your list of storage facilities that you can call any storage facility.
The way that we do that is you just on to Google Maps or Apple Maps. Apple Maps has declared that they’re going to be the competitor of Google Maps in the search engine. They’re pushing to grow their search engine capabilities. They want to be up there with Google Maps. Google Maps is the largest search engine in the country, so you use that, but if you have an iPhone. You can also get on your iPhone and go on to Apple Maps then search Storage Near Me.
Start looking at all the facilities and building that out. Your goal when you build this list after you figure out what markets you’re interested in, you build the list out and you’re going to call the owners up. The phone number is right on Google Maps. Call them up and maybe an owner will answer or maybe not. Building the list is step one, but calling the owners is step two.
From the list that you build, you could call the owners and ask them if they’d be interested in getting an offer, “My name is Stacy. I live in your area or I have family in the area. I’m very interested in getting into the self-storage industry.” I’m calling owners up and seeing if they be interested in getting an offer. I’m telling you, I don’t own one. I’m trying to buy my first one. You be as real and as authentic and as of vulnerable as you can possibly be when you’re talking to your owners because the owners are regular people like you.
They’re not big wigs that own a lot of storage facilities. These owners only own one or maybe two facilities. They’re trying to make it like everybody else in the world. You don’t want to sound like you know what you’re doing. You want to sound like a real person that’s trying to get into the industry. That’s what I do and that’s how I connect with all my owners. It resonates with them and that’s how I’ve been so successful in the industry, by being real with the owner.
That’s my advice to you when you call the owners. If you buy the course, the Super Simple Self Storage Course, inside that course is a seller call sheet. On the seller call sheet, there’s all the stuff that you should be asking for. It gives you a script on what you could say to the owners and all the information that you need so that you can ask the owners for and run deal analysis on it.
This is the area where everybody gets tricked up on. Building a list of storage facility is the easy part. Let’s go Google it and call start building your list up. Calling the owners and talking to them is where everybody just gives up. The truth of the matter is calling the owners is where most people give up because they don’t want to call the owners because they’re afraid of what to say. They might sound stupid.
The truth of the matter is, the owner has no idea who you are. It’s like Taylor calling up and saying, “My name is Taylor. I live in the area. I’m interested in buying a storage facility. I don’t own one yet, but I’m calling all the owners to see if you’d be interested in working with me. Maybe give me a chance to let you give you an offer.” Pausing and letting the owner think about it for a second and telling you yes or no.
We do this every day. I’m telling you, all my virtual assistants are calling 20 to 30 owners a day and trying to see if we can get an offer. This is a numbers game. That’s it. Typically, it takes around 50 calls to find one owner that wants an offer. If you only call 20 people and they all said no then you gave up. You essentially screwed yourself over. It’s not 50 phone calls. It’s 50 owners that you talk to. Most storage facility owners do not answer the phone. I say 80% of all owners do not answer the phone, especially in secondary and tertiary markets.
Make sure that you don’t give up on this, but this is where the grit is going to come in. This is where it’s like, “I’m going to hunker down. I’m going to sit and start calling owners.” This is where you you’ve asked the owners if they would be interested in getting an offer. If they say, “I’d be interested in getting an offer,” and say, “Great. I need this, this, and this for deal analysis.” I don’t need your P&L, balance sheet, rent roll, and all your information about your tax returns.
I don’t need all that because if you need that from an owner who’s talking to a stranger on the phone in order to run a deal analysis. All you’re going to do is scare everybody off. No owner is going to be like, “Who are you again, Taylor? Here’s my tax returns. Here’s my rent roll here. Take it all.” Nobody’s going to do this. We have a list of things that we ask for that they typically know off the top of their head. If they don’t, it takes them a couple of days to get them.
We’ll ask them, like, “These are the things that we need. If you don’t know that now, then we’ll just email you the list. You could get it to us. All we need is the numbers, but know that if we come up with an offer that’s near where you’re at. We’re going to need to have to see proof of what you’re saying.” If you’re going to have to go get a bank and get a loan, we’re going to need proof. For now, give me your numbers, and I’ll make you an offer. It’s just an offer. That’s it.
You use the seller call sheet that tells you everything that you need in order to run deal analysis. Whatever you use to run, whether it’s going to be our deal analyzer or somebody else’s deal analyzer, those numbers are yours. You have to get those from the owner and input them into the deal analysis so you can run the deal analysis. You’ll need some way to run a deal analysis. That’s it.
What I wanted to talk about real fast is that I’m telling you the way that we do it is we build a list, call the owners, ask them if they’re interested in getting an offer, get the information from them, then we make the offer. This is how we internally do it. This is how I’ve done all my deals. You can go online and look for facilities. I know you’re already doing this anyway. You’re in a Facebook group, and you see a whole seller with the deal. You’re all putting your email addresses down, and you’re like, “Send me the information.”
The whole seller, I would say 80% to 90% of the time, never sends you what you need, or if they do, you have to go through all that information. You have to pull that information out, but you’re still going to have to run your own deal analysis. A lot of times, if they are selling, then you’re going to get a big package. You’re going to have to go through and be able to input all the information that you get out of their package into your own deal analysis.
Do not ever trust the deal analysis of the wholesaler. Also, do not ever trust the analysis of the real estate broker that’s listing the property because most real estate brokers have never sold a storage facility before. They have no idea how to run commercial deal analysis. They’re just putting their own numbers together.
Do not trust the deal analysis of the wholesaler and real estate broker. Click To TweetYou have to call the broker up, talk to the broker and tell the broker that you’re interested in their deal, “Please send me the package of all the information.” Take the information that they give you and put it into your own deal analysis. Run the deal analysis on your numbers. Not on their numbers. For instance, I met with the owner on Zoom, and he’s making $160,000 a year. His expenses are $40,000 a year. We’re running our numbers at about 38% for expenses. He’s only at $40,000. His expenses are low.
Why are his expenses so low? It’s because he’s the one that’s managing it. He’s answering the phones, doing all the work, and is the boots-on-the-ground person. He doesn’t have a phone person. It’s not passive income for him. These facilities are his life and his livelihood. He has his expenses as low as possible. Those are your expenses.
I can guarantee you that the broker or the whole seller is going to be using his expenses. Another thing is the broker, and the whole seller are going to be using his taxes. When you buy that property for double or triple, what he bought it for, your taxes are going to be completely different. Your expenses need to be your expenses. Not the wholesalers or the brokers. My team has called and put offers in at least half of the facilities on Crexi already.
Anything that’s less than $3 million, we know every facility that’s on Crexi. We’ve already put offers in on pretty much every single one of them our storage facilities. The offers that we put on have all been rejected. Why? It’s because what the property is listed for is way more than what we’re willing to pay based on our expenses. It’s not working. You know when you put a facility online to be sold, you have to pay the realtor fees and closing fees. You have to calculate at least 10% to close that deal.
That’s why, a lot of times, properties are super high. The numbers don’t work. We put an offer in for $900 on a property that was listed for $1.6 million. You have to think about, “Do I want to a deal? How much of a spread do I want on those deals?” I’m going to tell you online the spreads are super thin versus going to owners directly. You can go online and look at facilities online. You can go and talk to wholesalers.
Remember, that whole seller also has a fee that he’s trying to make in the same respect as that broker also has a few that they’re trying to make. That’s why a lot of times the prices are not good. Also, wholesalers and brokers give this price to this owner, and this price is stuck in their minds. I’ve seen it firsthand with my students.
One of my students bought a facility for $3 million. We ran the numbers at $6 million. She wanted to list it with the Marcus and Miller trap. They told her $7.2 million. We listed it out, and every offer that she got was at $6 million. She ended up not selling because she had in her mind $7.2 million. This happens, I’m telling you over and over again. That is why I feel it is best to go directly to owners and talk to owners so that you can negotiate. You come with your own price. You can put in five different offers.
You can offer seller financing. You could make creative deal structures, get to know the owners, and meet the owners. When you have these middle players in all your deals, you have to do with the middle player. The middle player, a lot of times, screws the deal over. It’s true with accountants and attorneys. I have one owner. He has to go ask his attorney everything. He wanted to take the owner financing deal, then he asks his attorneys. His attorney said, “Don’t take the owner financing deal.”
When you have that middle player, it screws the deal up. The more middle players that you have in your deal, the farther a chance you’re going to have to get a deal under contract. You want to minimize those middle players. That is stage one. When you make your offers, make at least four offers. You’re negotiating the contract with the owner. This negotiation process this is where you’re going back and forth. This could take a month, if not longer, sometimes, to negotiate.
We have one deal now in Louisiana. We have been negotiating this deal. This takes a long time. You have to be good and be on top. When they come back with the counteroffer, rerunning those numbers, looking at the deal again, and putting an offer in that may be better for you. Not for them. We’re accepting their offer if it’s a fair offer. This negotiation process super tricky and super harsh. You want to make sure you get good at that.
The negotiation processes are super tricky and harsh. Make sure to get good at that. Click To TweetThe way that you negotiate is by knowing and understanding deal analysis. Also, when you make four offers, you’re getting the wills on the owner’s mind or the broker’s mind open. They’re starting to think like, “I didn’t realize I could make this much money. I didn’t think about seller financing. I didn’t think about doing some a creative deal structure. Let me meet this person, and let’s hash it out.”
I talked to another student. I was like, “Let’s get on Zoom and hash this out. We obviously both want to work together, so let’s work this out.” We get on Zoom, and we talk about it, or the student goes to the owner and talks about it. That’s how it works. That is stage one, negotiating. The goal is to get it under contract so that you can move to stage two.
Remember, I went through the entire stage one, and this is the hardest part of the deal. You can go on Crexi or to a wholesaler, or you can do what I love, which is calling the owners directly. This is stage one. Hopefully, this inspires you to get out there and start doing these steps. If you buy the course in the deal analyzer, it’s going to dive super deep into how to do all this. All the questions that you have in your mind that Stacey didn’t answer are because it’s all inside the course.
That was our discussion. I talked about the four stages of investing in self-storage, and I went a little bit deeper into stage one. Hopefully, this inspires you to get out there. Let’s try to get out there and make 2024 a success. I’m here to help you on your investing journey. Let us know whatever we need to help you move forward. I will see you in the next episode on a totally different topic and information. I’ll come up with something to teach for next episode as well, too. If you have any suggestions, let us know. I’m open to whatever you folks want to learn. Post it into the Facebook group and give me some suggestions. I’ll teach that as well in the discussion. Take care.
