Nothing beats an actual physical inspection when it comes to buying facilities, especially when you buy mismanaged ones that need a lot of work. In this episode, Stacy Rossetti takes us on a tour across the country as she visits some of her facilities. From Pennsylvania to Fayetteville to New York, Stacy walks us through on a three-day trip to each of the unique properties they’ve bought and are currently working on. Plus, she also breaks down key areas according to where they are in the six self-storage markets, then identifies each of their cap rates. So, buckle up and join Stacy in this ride!
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Watch the episode here
Listen to the podcast here
The 6 Self-Storage Markets’ Cap Rates
Three-Day Self-Storage Drive
I have been driving all weekend. What is everybody doing for the holidays? I would love to know. I’ve been driving from Florida to Pennsylvania. We’re driving to New York. What did we do this weekend? I drove from Florida to Live Oak. I stopped in and checked on two of our facilities, and made sure they were okay. I was driving up and swung by the two facilities that we have in Live Oak. Pete was up in the Atlanta, Georgia area doing some work on some of our facilities up there.
For everybody that’s new that doesn’t know, we have thirteen facilities in Florida and Georgia. My husband Pete was up in the Atlanta area working on some of the facilities that we have up in this area. He left me for two weeks in Florida to take care of Lillian and to do all the work and things down here. I drove on Saturday from Tallahassee to Live Oak. We’ve got two facilities here. I drove over and checked on them.
On one of the Live Oak facilities, there was a little bit of trash that was left outside or whatever. You could tell they cleaned the unit out and they left a little bit of trash. I picked that trash up and put it into our owner’s unit. We drove over to the other Live Oak and it looked like somebody had moved out of one of the units and left a whole bunch of boxes and stuff. I took all that trash and put it into our trash unit.
Typically, at our facilities, we have one owner’s unit which is where we leave some things like any yard stuff, a leaf blower or any tools, extra locks, or whatever that’s needed at that facility. That’s the owner’s unit. We also have a trash unit. We try to get two small ones like 5x10s if we can. If we ever find any trash, we’ll put it into the trash unit. Whoever is the boots on the ground person will come over and clean that trash unit out. They’ll put it all there and once it gets so full, they can put it in the back of their truck or whatever to take it to the dumpster or something.
I then drove up to Valdosta and it was the same thing. There was one unit that had a little bit of trash left out. This is typical. It’s frustrating but you shouldn’t get frustrated with something like this because it’s part of owning storage facilities. People are always going to be leaving trash out. I took that trash and put it into the trash unit. That took a little bit of time. I then drove from Valdosta up to Macon. We just bought a storage facility in Macon. It’s not under here. It’s under Mission Self Storage because I have a 506(c) fund. It’s a Reg D fund and I’m raising money for that.
If anybody wants to put any money, we have a great facility that we’re buying for $1.4 million. That’ll be the third facility in the fund. I’ll be pitching that right after that. You can see, we have the Mission Self Storage in Macon. We also have Mission Self Storage in Blairsville. The goal for Saturday was to get to Blairsville because that’s where Pete had been staying. He stays in this area and he works in this whole North Georgia area if he wants to go in and do some work or something.
Mission Self Storage, Macon is where we went because we just bought that facility and I had not seen the facility. I drove through that facility. I drove around and took a look at it. It’s not too bad. I picked this facility up. This is a great deal for the fund. I put it into the fund because it’s a great deal at 33% ROI without even financing it out. I think it’s 171 units and I picked it up for $375,000. It does need some work. It needs $200,000 worth of work.
We claimed Google on this and we haven’t gotten any pictures or fixed it or anything yet, but we’re working on it. Let’s see what else. I’m going to zoom in. I’m going to use Google Maps all day for the training and stuff because we’re going to talk about cap rates as well. It’s off this major highway. There is a major road. We have a competition here and there is one that’s for sale. I never looked at this. Let’s take a look at it. It’s on Crexi. If you guys know me, you all know that I don’t buy anything from Crexi. We go directly to the owners. Macon Storage is on sale for $1.7 million on Crexi. We could quote that up and maybe take a look at it too. We have one of our competitions. There are four.
If anybody knows anything about Macon, Georgia, it’s like a low-income rental city. There’s nothing wrong with this. It’s very industrial. A lot of stuff is run down. It’s one of those things. This type of facility is exactly what I would imagine. I saw this one pop up on Crexi. I was like, “It’s for sale.” I would never buy it for that much. I buy mismanaged facilities that need work. It is what I buy, but I guess that’s an income-producing property. If that one can go for $1.7 million, then ours can go for higher.
Let’s go back to Mission. It’s not bad. My husband Pete was like, “This one’s bad.” I was like, “Really?” He is like, “Yeah, it’s bad.” There’s a long building near it and another building. There are other buildings near it also. It’s on 6 acres. There’s a lot of land. It’s got a nice gate. It’s got this little road that comes in and comes out. You could come in and you could turn. There’s a nice security code and stuff. It’s all fenced in. It’s what it looks like.
It’s painted this gray and blue color, which does not look good at all. The blue does not look good. The gray looks good. I like a good gray on a storage facility because I feel like it hides a lot of imperfections and stuff. We’re looking at trying to paint a couple of our facilities right now. I like that dark gray, but the blue looks horrific. It does not look good at all.
There are buildings in the back. There is one that is painted. This is a warehouse that was rented and then the renter died, and then all his stuff is there. Now, we have to go through the auction process because the wife does not want it. She said, “I don’t want any of that crap.” We’re going to have to go through and figure out how to get rid of all that stuff. He died years ago and the owner never took care of this stuff.
We’re going to have to go through the process and do that, but after we clean this thing out, you can rent this thing out. It’s a nice big warehouse. There is another storage, but he did not paint that. He halfway painted the other side and he did not paint the back. I drove through and I took a whole bunch of pictures and stuff, but I haven’t organized them yet. It doesn’t look bad at all. I think the blue is what makes it look bad but the facility itself is in not in too bad shape.
Towards the back, he took out some of the walls in between units and stuff. We’re trying to make it bigger and doing weird combinations of unit sizes and stuff. I’m not 100% sure what he was doing, but he took 171 units and he made it to where it was only 90 of the units were usable. We’re going to have to go back but he has all that sheet metal still. He has metal, walls and stuff. It’s going back and making a whole bunch of either 10x10s or 10x20s.
What Pete’s going to do is hire a crew to come out there and fix everything up, fix all the walls, put everything back in place the way it should be, and get the unit sizes in order. After that, we’re going to paint the thing. We’ll probably keep it dark gray and probably do red doors. What do you guys think? What color should I paint this? Our Mission Self Storage brand falls under the fund and we’re going to keep that brand.
Our logo is red and black. I was thinking of dark gray and red doors. Ms. Lillian’s Self Storage‘s colors are pink and purple. We don’t know what colors to do. We were thinking about dark gray with maybe pink or purple doors. I’m not sure. You all tell me. I’m not good with colors. Maybe you will come up with some ideas for us. That would be great. We did that. I drove from Valdosta all the way to Macon. I got there right when it was starting to get a little bit dark outside.
From there, I drove up to Blairsville, which is up here. That’s where the other Mission Self Storage is. That’s where we stayed. We stayed overnight in that area and up in this area, we see Blairsville. This is the facility that we bought. I’ve been over this deal quite a few times. It’s a great deal. That’s where we ended up on Saturday. We have a facility in Clarksville under contract. We’re moving on out into Tennessee for this deal.
It’s a fund. It’s a 506(b) fund. It’s open to accredited and non-accredited investors but it’s only open to my market and my VIP list. This one, I’m the GP for the fund. I told Pete, “We have to drive over and take a look at this facility.” That’s what we did. We’re trying to get to New York. Going that way is totally opposite direction and going up. That’s where we are right now. Going over to that way was five hours out of the way essentially to go look at this facility but we did. We drove over and took a look at it. We could see what it looks like. We have it under contract. We’re going to buy it. We are raising the money right now.
It’s called Cherry Station Storage. It’s 354 units, but that includes 65 or 70 parking spaces. It’s like 250 doors and 75 parking spaces. We drove over and took a look at this one. We spent maybe a couple of hours there and we did a walk-through. We’ll post some walk-throughs. What Pete does is he has a walk-through sheet that he uses. He takes it and walks through. He makes notes on every single one of the facilities and the doors.
He checked all the doors. This one is indoor storage that is not climate controlled. We walked all in and we walked around the buildings. We look at everything to see if the buildings are okay or if there’s any work that needs to get done. He makes a note of all the different buildings and the sizes of each of the units are for each of the buildings. If there are any latches that are broken or if there are double locks or anything that is out of the ordinary. If any of them are open, he’ll open the doors as well and check the doors.
He makes a walk-through list. This is all parking and stuff. It’s not utilized the best that it could be. We’re hoping that we can rearrange it and maybe get a little bit better parking in there. The very first facility that we have is in Fayetteville, Georgia. We also had a lot of parking in that one. It took us a while to reconfigure everything, but we went from 40 parking spaces to 75 parking spaces after we reconfigured everything. We’re hoping that we’ll be able to do that one as well.
On Sunday, we got up super early, 6:00 in the morning. We got there at about 10:00 or so. We did the walk-through. We left about noon. We had some lunch and we headed to Pennsylvania. It’s a thirteen-hour drive to get to Pennsylvania, which is where his sister lives. We did not make it and then we had to sleep. We stayed the night in Lexington and we got up early this morning and drove the rest of the way here.
For the last three days, I’ve done nothing except for driving and it’s exhausting. If anybody knows anything about driving, it’s so much work to drive even though you’re only sitting there. Every couple of hours, we’re switching and drove, but we made it. We’re going to be here until tomorrow and then on Wednesday, we’ll go to New York. While I went through that story, I showed you our storage facilities and where they’re at, Ms. Lillian’s Self Storage and then also Mission Self Storage. Typically, we buy in Georgia and Florida. This will be the first facility right here that we’re buying in Clarksville.
It is so much work to drive even though you’re just sitting there.
Different Markets For Storage
In our last episode, we talked about all of the different markets that are out there for storage. Did any of you remember any of them? What are the three major markets? You have the primary market, the secondary market, and the tertiary markets. These are the three markets within the commercial industry.
In between each of those markets, you have the submarket. You have a primary market and then you have a sub-primary. You have a secondary market and then a sub-secondary. You have a tertiary market and sub-tertiary markets. Sometimes in the commercial world, they may call it a Class-A market or a Class-B market or a Class-C or D market or something like this. The facilities and the buildings themselves also have a class system.
For instance, if you went onto Yardi and started looking up commercial property or storage facilities, you would see a lot of Class A, B, C and D markets, which are primary, secondary and tertiary markets. I called them the primary, secondary and tertiary. Let’s go off of this Clarksville, Tennessee. We have here the one that we’re buying. When you look at Tennessee, you can see all the major cities in Tennessee. You have Nashville, Chattanooga, Knoxville and Memphis. You have Jackson and Clarksville.
As you zoom into Google, you’ll start noticing all the different primary and then maybe sub-primary and then secondary markets. I’d like to look at it this way too. If you’re looking on Google maps and you zoom all the way out, you’ll see Nashville. Nashville is a primary market, but Knoxville, Chattanooga and Memphis, I would also consider them to be primary markets.
When you start zooming into Google, Nashville still pops up. You already know that one is a primary. If you zoom in one time, you could see that Knoxville, Chattanooga and Memphis come up, and then Pigeon Forge comes up. Pigeon Forge is a touristy area. Maybe it comes up that way but I would consider this to be also a primary market even though it’s a little tiny town. If you look up the population of Pigeon Forge, it’s not a huge big population. The markets all depend on their populations.
Markets all depend on their populations.
Let’s do the Pigeon Forge population. It’s 6,000 people, but it’s a very touristy area where a lot of people are coming and going. RVs are parking in Pigeon Forge. It is a primary mark for sure. RV parks are the primary markets there. It doesn’t always have to be based on population. What it has to be based on is population plus any movement in the area. I would say Pigeon Forge may be considered a primary market just because it’s expensive to be in that area. If you’ve been there, you know that it’s expensive.
Chattanooga is very interesting because I was reading Realtor.com or Redfin or which list it was, but Chattanooga is considered one of the top five fastest cities to be growing in 2023. Also, another city which I thought was very interesting that I saw on the list was Augusta. Chattanooga pops up and I think Chattanooga is going to be a very good growing city over the next couple of years, even during the recession and stuff because. At one point, it was considered a secondary market but it’s now moved into a primary market because a lot of people are moving there.
Once you zoom in a little bit further, you can see Franklin, Murfreesboro, Clarksville and Cookeville. You can see Jackson. These cities are popping up. When you look at Nashville, Franklin and Murfreesboro are popping up. If you’ve been to Nashville, you know that Murfreesboro and Franklin are suburbs of Nashville. These would be considered primary markets as well. A standalone city would be considered secondary. For instance, in Clarksville, the population is between 150,000 and 200,000 people. I think it’s growing pretty quickly. What’s Cookeville? Cookeville’s population is 35,000.
To me, a primary market is maybe 150,000 people and up. If it’s a standalone city and if it’s less than 150,000 people but it’s more than 25,000 people, it would be a secondary market. Cookeville would be the perfect example of a secondary market with 35,000 people in the middle of your state. What’s Jackson, Tennessee’s population? It’s 68,000 people. That’s maybe in 2020 or whatever but that doesn’t matter. It’s 68,000 in Jackson and you have Cookeville which is 35,000.
To me, when I’m looking at Tennessee and where I want to be in buying storage facilities, Cookeville, Jackson and Clarksville would be the cities that I’m looking at to start. I only look at secondary and tertiary markets. I do not look primary. I do not look at any suburbs within the primary market. When I first started a few years ago, I could be in a subprimary market.
In 2016 and 2017, nobody wanted to invest in self-storage. People were like, “You are getting into self-storage. Why?” Only in the course of the last couple of years have people wanted to invest in self-storage. Now, everybody wants to invest in self-storage. There are a lot of hands in the pot. There’s a lot of competition. There’s definitely enough to go around but it takes time and energy to find these deals. We focus on secondary, sub-secondary, tertiary and sub-tertiary markets.
In Tennessee, I would be looking in Cookeville and Jackson or maybe in Johnson City in Kingsport. This looks like a good area because it’s right next to each other. Let’s do Johnson City. I’m always looking at the population. There are 71,000 people in Johnson City and Kingsport is 55,000. In this little area, you have 125,000 people. In Clarksville, you have 150,000. Cookeville is 35,000 and Jackson is 60,000 or 70,000.
By only looking at this state, I have a very good idea of where the primary and secondary markets are. What’s the population of Chattanooga? They have 182,000 people. Also, Knoxville is 192,000. I would say 150,000 or more is getting into the primary market. Definitely 200,000 or more is a primary market. Knoxville I would think is a little bit too big. As you start zooming in, you can start looking now. The reason I like Clarksville is because Clarksville is all by itself. It’s next to Fort Campbell.
Being next to a military base is a very good location as well, just to keep that in mind. Also, in Georgia, you have Columbus which has military bases and stuff. You may want to even consider that when you’re trying to figure out what markets to look at. They’re coming and going. They need a lot of storage. The population in Fort Campbell is 12,000. Even adding those two up together, it’s 150,000 to 175,000 people for those two.
Knoxville is getting a little bit too popular. It’s growing. It’s reaching down into Oak Ridge and Lenoir City and Maryville, and even into Pigeon Forge and Gatlinburg. This whole area is very expensive. It’s getting to be very expensive. I would call Oak Ridge, Lenoir City, Maryville, Pigeon Forge, and Gatlinburg sub-primary markets. I would say Knoxville is a primary market and these sub-primary markets would be these suburbs around this major area right here because it’s pretty populated in this area.
I’m looking for areas that are standalone cities like Clarksville, Fort Campbell area, and then this Jackson area. I would start looking at the population and start looking at to see where is that 75,000 or less. It would be a good area to be focusing on. I told you to also think about how much money you are going to be spending on your facility. In Clarksville, I’m buying a facility that’s 350 units for $2.8 million.
Remember to also think about how much money you are going to be spending on your facility.
That’s a 150,000 to 200,000 population right here. Now, it’s worth $5.3 million, but it’s a more expensive facility. If you’re not there yet, then essentially you know that you cannot afford a facility where there are 150,000 people. You have to start working your way down to try to figure out what population area you can afford. In Jackson, there are 70,000 people here. That’s a big town. When you search for storage in this area, I wouldn’t be surprised if you found big box facilities.
You may not find extra spaces in CubeSmart and stuff like this, but in this town here, there are big box companies that are either sub-primary or secondary players. Each one of the levels has its own different players. They have the primary and all those. In Georgia, we got ten Federal storage and they’re coming into towns like Jackson. They’re buying in these types of towns from 75,000 to 125,000 people.
They can afford $2 million to $4 million facilities. It’s where they’re at. I’m guessing that these facilities in this area are going to be a little bit more expensive. You may be able to find something for $1 million. You may be able to find something like I found in Macon. Macon has 150,000 people, but Macon is a rental city. It’s an industrial city. When you drive through Macon, you’re not like, “This is the most beautiful city ever.” You’re like, “There’s a lot of trucking going on here.”
It’s going to be a little bit cheaper for stuff. I found the ugliest storage facility in a town of 150,000 people. That’s what I found. You can do the same thing in a secondary market. In this type of market here, is there a storage facility in this area that the owner has not let go of and/or run to the ground? I would go through and I would look at all these storage facilities. Remember that you also want to look at the facilities that are not on Google Maps.
What that means is it is not easy to get onto Google Maps. A lot of people that have been owning their facilities for 20 or 30 or 40 years are not on Google Maps. You want to also find those facilities and call the owners as well. We call owners directly and talk to owners directly, but there are a lot of storage facilities that are on Google Maps. I’m guessing that probably in US Southside, you could get in and start educating yourself on what these facilities look like. There is one that is all gated and painted. Somebody bought it and it looks like it may have gotten painted. US Southside Storage is what it looks like.
The pictures are also horrible on this one. You can never tell what this damn storage facility looks like. It’s annoying but I would put that as a B. The classes I showed you are A, B and C. We do this also for our leads. It’s hot, warm and cold. I would probably put that as a warm or a B or something and say, “These pictures on Google Maps suck. Let me try to call the owner and see if he needs somebody to buy this facility for him.”
Also, Area Wide Storage. It is looking pretty good. It’s a little tiny facility back in the back. It may be a different kind of storage. Maybe it’s close. Look at the storage facility. The phone number’s right there. You can give him a call and see if he wants to sell. This is a great starter facility. You do some parking. It’s long. These standalone towns like Jackson, Clarksville, and Cookeville are secondary markets. You could try to get in there and see if there are any facilities that you could call and talk to the owners to see if they’re interested in selling. I found a whole bunch over here in Jackson. You could do the same thing in Cookeville.
I would stay out of Franklin, Murfreesboro, and this whole primary market. This is a sub-primary market. This is a secondary market, and then a tertiary market. I can only afford something that’s $300,000. That’s a tertiary market. You want to be in little tiny towns. You look at the population of these towns and these are all coming up. I would be looking at all these towns like Savannah, Henderson, Milan, Martin, Union City, Paris, Camden, and all these little tiny towns and see what the populations are. Start looking inside these to see if there are any good storage facilities in this area.
As you start zooming into Google more, all these little tiny towns come up. Every single one of these little tiny towns has storage facilities in them. They may have one or a couple, but pretty much every town that has a couple of hundred people or more has got to have a storage facility in it. If they don’t, there needs to be a storage facility in there because everybody needs storage especially nowadays.
We own a storage facility in Warm Springs, Georgia, which is a town of 400 or 500 people. It’s a super small town, but the population around it was maybe 6,000 or 8,000 people. We’re the only storage facility in the area and we’re always full. We only had so much money to buy a storage facility. This is one of the very first storage facilities that we bought. We bought it for $100,000 and it’s worth $350,000 or something right now. We’ll make $200,000 on that thing. There’s something wrong with making $200,000 on the storage facility over the course of three years of owning it.
Cap Rates For Each Self-Storage Market
We’ve been looking at these tertiary markets here. It means the secondary and tertiary markets. In a state like Tennessee, you have to also know the cap rate. The cap rate is the NOI divided by the purchase price, but you want to know what the cap rate is. I get this all the time. Somebody that I’m working with right now emailed me. He is like, “You’re buying in this area. What’s the cap rate in this area?”
The cap rate is essentially specific to the area. You can’t say, “It’s a 6% cap or a 5% cap or whatever.” If you use the cap rate as a number to purchase something, it is biased because you’re going to pay what you feel comfortable with in the deal. You shouldn’t base it solely on the cap rate. Some people are bigger risk-takers than others. They’re okay with paying a different cap rate than others. What I wanted to get into is the cap rate based on the markets that we talked about.
You’re going to pay what you feel comfortable in the deal. You shouldn’t really base it solely on just cap rate.
In the primary market, typically, the cap rate is between 4% and 6%. For instance, on our deal analyzer, there is a place that’s called the market cap rate. The market cap rate is basically what you’re trying to either purchase or sell that cap rate or that facility for. In Nashville, at one point they were getting down to 3% caps. It was crazy cap rates.
For now, what we’re running our numbers on is if you were going to buy something in Nashville in the primary or the sub-primary markets, then you would be between a 4% and 6% cap rate. If you’re going to get into a secondary market, which we’re buying in the Clarksville area, we run our numbers at a 7% cap.
All of the ten virtual assistants that work for us, I tell them to run all numbers at a 7% cap for a secondary market and an 8% cap for a tertiary market. An 8% cap for a tertiary market is high but it’s doable. You just have to make a lot of offers in order to get an 8% cap. Tertiary markets were at 8% caps plus secondary markets are 6% to 7%, but we’re pushing 7% caps. All my students are buying something right now and they’re not buying anything higher than a 7% cap.
We’re sticking to 7% and 8% caps. That’s where we’re at, but we only buy in a secondary and tertiary market. Keep that in mind. If you want to get to super-populated areas, then you want to have a 4% or 5% or 6% cap depending on what your risk level is. With primary markets, Memphis may be a 6% cap and Nashville may be a 4% cap. A very big primary market might have a lower cap rate than a smaller primary market.
Memphis, Knoxville and Chattanooga are going to be smaller primary markets than Nashville. Nashville is a strong big city. That’s why I said 4% to 6%, or 6% to 7% for a secondary market, or 8%-plus for a tertiary market. When I first got into storage in 2016, 2017, 2018, and a little bit in 2019, we were buying our stuff and pretty much everything was 10% or 12% caps. I was buying in secondary and tertiary markets. We bought income-producing properties at ridiculous cap rates, but gone are those days.
You cannot find deals for 10% caps anymore. You want to stick to a 7% cap or an 8% cap depending if you are in secondary or tertiary markets. My virtual assistants are buying or running numbers at 7% caps. That’s what we’re doing right now. Hopefully, next year we’ll be able to go up and even get a better cap rate. Over the last couple of years, everything got screwed up so the prices are not good.
Cap Rates In Deal Analyzer
Let me ask you a lot of questions. I want to do that but before we get into the questions, I want to pull up my deal analyzer. We have one of the ones that we put an offer in. This is where we put the market cap rate. It depends on what your area is, primary market, secondary, sub-primary or sub-secondary. A sub-secondary market is the suburbs of a secondary market. A tertiary market is a small town and a sub-tertiary market is a super small town or something like that.
We’re running our numbers. This one here is in Georgia. He’s making $80,000. This is in Dudley, Georgia. The population is 590 people. He has a facility that’s 90 units. I think Dudley, Georgia is in middle Georgia. It’s South of Macon and the middle of Georgia is where it’s at. It’s a little tiny town in the middle of Georgia and we are running our cap rate at 7%. He has 90 units. It’s 11,650 square feet. That’s a big storage facility for a town that’s only 600 people. He’s full and he’s at $0.64 a square foot.
We looked at the competition and it is at $0.57. He’s at the highest number that he could be at. There are no raising rents on this thing. When you run the numbers on this, you could see it’s valued at $777,000. Think about that. This is a little tiny town of almost 100 units and the value of this property is $777,000. We put the offer in and we ran it at a 7% cap. We tried to get 10%-plus cash-on-cash returns. We keep our numbers at 10% for cash-on-cash because we want to make 10% on our money at least minimum.
At $530,000, that only came out to 8.36% cash-on-cash. That’s still at 9% cash-on-cash return. $450,000 is the offer that we came up with, and then we put in an owner financing offer. For my deal analyzer, what we do is we’ll always put a cash offer in. The cash offer is the same as what we could get for bank finance. That’s why you see the numbers all change but then we’ll come into the owner financing offer, and we’ll offer more money because if we don’t have to get bank financing, we’re willing to pay more.
Let’s say we did $525,000 on this one. We did three offers of $525,000. We run our numbers, as you can see here on the deal analyzer. We’re using $450,000 with 30% down. We’ll probably do 25% down, and 7.5% interest is probably going to be 8% interest now as we close. What interest rate do you think we’re going to get on this? That’s the question of the day. If we close in 90 to 120 days, the rates are going to raise another 0.25 or 25 basis points in February and March.
I’m telling everybody to run their numbers at 8% right now. It could be anywhere from 7% to 8%, especially for your first deal. It’s going to be expensive. You want to make sure you run your numbers at what the interest rate is going to be when you close. As you can see, a good offer for this deal would be $450,000 and a $525,000 offer for owner financing.
In the deal analyzer, it’s how we look at it. What I want to know is if I buy this at a 7% cap, what is the valuation going to be when I want to sell the property? This valuation is, “What could it be worth once I increase the rates and once I hold onto the property? In 3 to 5 years, what could I possibly sell this property for?” That’s going to be $800,000. You then have to ask yourself, which cap rate are you going to be able to do? Is it going to be an 8% cap? That number is going to come down if it’s an 8% cap.
We continue to go from 7% to 8% and in tertiary markets, it goes from 8% to 10%. I was buying stuff at 10% in 2016. That means you’re also losing your valuation. This market cap rate is very important for you to consider what number you’re going to use based on not only the population and the location of the states but also the different types of markets out there, going from sub-tertiary to tertiary all the way up to the primary. Also, knowing those numbers. Right now, we’re at a 7% cap, but we only look at secondary and sub-secondary. We’re essentially at secondary markets right now.
Secondary markets are at a 7% cap. The question is what will that cap rate become next year? Are we going to lose money or is it going to stay stable at 7%? Are we going to be able to sell this like Clarksville or whichever one we do? Are we able to sell that at a lower cap rate so that we can make more money? Can I sell this property at a 6% cap? Back in the last few years, you could buy tertiary market properties for 6% caps and I would see them being sold at 5% caps.
I never bought anything at a 5% or 6% cap in a tertiary market. I always stuck to a 7% cap or higher. You want to consider that if you’re going to sell this property within the next two years or so, then you want to make sure the account for the right market cap rate, that’s going to increase or decrease over that time or hold onto this property until the upcycle starts coming again. That is where you’re going to sell, but that means you’re going to hold onto the property for five years or longer.
Cap rate is very important when you’re doing deal analysis. You want to understand the market cap rate of your area based on the location. Also, what I wanted to say is this deal analyzer up until now has only been offered to my students. First, my virtual assistants had access to it and they used it for a long time for months and months until we corrected it and fine-tuned it. They were my guinea pigs. After it became perfect, we moved it over to my students, and my students have been using it since August 2022.
My husband Pete and I put this deal analyzer together. We used our other deal analyzer for years and years and we upgraded in 2022. As of 2023, this deal analyzer is going to be available to the public. We’re going to make it available to the public. You have to be on the lookout for access to this deal analyzer if you want. You’ll get the deal analyzer. We’re going to sell it to anybody that wants access to it. You’ll also get a couple of training videos on how to fill it out and stuff like that.
Be aware that you’ll be getting access to that if you want to purchase it in 2023. We’re working on making sure everything is set up for that. That’s the cap rate and the markets. It’ll be interesting to see what happens over the course of the next year. Where does the cap rate go? I didn’t buy anything. In 2022, we bought four facilities. The year before that, we didn’t buy anything because prices were way too high.
I only buy stuff at a 7% cap, 8% cap, 9% cap or 10% cap and stuff like that. We didn’t buy anything. You got to stick to your guns and be strong. Another thing I wanted to point out before we end the training session is that I talked to a couple of bankers and they said that over the course of the last couple of years, they lent money to investors on storage and the storage facilities are now considered high risk because when they ran their numbers, they were running their numbers at 6% caps and 5% caps.
Now, the cap rate is not going to be there. Also, they ran their numbers so that if they were full, then they’d be able to pay their mortgage. If you’re running your numbers and you have to be full and you’re a 6% cap and that market is a tertiary market and should be a 7% or an 8% cap, then you are going to put yourself into jeopardy of not being able to afford that mortgage and all the other expenses that come with that deal.
Do not push your numbers. Be extra conservative over the course of the next couple of years because if a bank is being conservative, it means that you should also be conservative. That’s my advice to you over the next couple of years. What does that mean to be conservative? That means that you are going to have to put more offers out than you could ever imagine in order to find that one deal that fits the numbers that are going to fit into your parameter.
Do not push your numbers. Be extra conservative over the course of the next couple of years because if a bank is being conservative, that means that you should be too.
That means it’s going to take extra time, effort, offers, and extra everything in order to find good deals. I have it set up internally in my company. We’re a lean and mean self-storage offering machine. That’s why we find so many deals. You are going to have to become this way as well because there are a lot of hands in the pot. Everybody wants to get into storage. Everybody is trying to find deals right now. You want to make sure that you put a lot of offers in, but you stick to your guns on your market cap rate, on your risk level, and on the price that you want to pay.
You can’t just put one offer in and hope you get it because the truth is we put in 5 to 10 offers in a week. We only get maybe one deal under contract a month. We’re putting in at least 50 offers a month, and we get one under contract. That’s the numbers that we’re seeing. Think about that over the next couple of months as you start preparing for 2023.
It’s not going to be easy, but there are going to be good deals coming up. As I said, I bought 171 units on 6 acres for $375,000. That facility is worth $2.3 million as is. I’m going to hop onto my fund pitch right now, and I see a whole bunch of questions. I teach every Monday for free. Also, I have my pitch right after this. If you want to be a passive investor, then I highly recommend that you listen to my pitch. It’s the Self Storage Fund of America. I’m going to jump off and do that. Take care.
Also, for the next two Mondays, I’m taking a break. We’ll see you on January 9th, 2023 for the Monday Nights. One last thing, the doors to my coaching program are open on January 8th, 2023. I only open them for two weeks. I only take twenty students. You want to make sure that you get on the waitlist. You can go to StorageNerds.com for that. You can talk to me about the coaching program if that’s something that you’re interested in.
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