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Author: golfwaymore Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 756651  
Subject: Self Storage as an Investment Date: 5/15/2003 12:51 AM
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Contrary to the opinion of many on REHP, I am not anti-real estate. As stated many times, the bulk of my net worth is tied to real estate. In fact, I'm not anti-anything when considering various asset classes. As I've said in jest many times, were investing in brothels legal, I'd probably be the first to pony up. <grin>

When considering investments into real estate, one soon realizes that unlike many other investment classes, it is a very diverse and even divergent group of opportunities. When someone says “we're invested in real estate”, 99% of the population instantly assumes that person is referring to residential rental property. Unfortunately, this ignores the other gazillion non-residential and even non-rental real estate investment types with differing risks and rewards. All real estate holdings aren't “rental houses” and all baseball teams aren't The Bad News Bears. <grin>

These comments should not be taken to mean that incredible returns cannot be achieved by skilled residential real estate investors; it just means that they don't work easily for ME.

I have three areas of real estate that I favor because (1) the amount of “work” involved is negligible which means it works for a retiree's lifestyle (2) the barriers to entry are high because at least two of them require substantial capital, and all them require expertise (3) the downside risks and volatility are markedly diminished than that of equities, and (4) the returns consistently beat the S&P historically as a minimum, and in some cases by 3X~4X.

The areas that fit these criteria, at least for me, are (1) foreclosure investing, (2) highly collateralized debt instruments, and (3) Self Storage Facilities, which incidentally don't require substantial capital.

So without further ado, the latter is the investment opportunity I'd like to explore in this post.

Who Rents Self Storage Space?

Simply put, EVERYBODY. I can honestly say that my facility has a cross section of folks from every extreme of income and society. Storage space is needed by people who just downsized their homes, just moved into a larger home, have nowhere to store their boats and RV's, who are remodeling a room or two, putting away their lawnmowers & garden equipment for the winter, wish to store an extra, inoperable, or classic vehicle, and small time entrepreneurs needing a place to stash inventory.

This is favorable, and important, because literally, EVERYONE can be a potential customer - no one is ruled out. I've lived in a 1000 sq ft home, and now a 3000 sq ft home; I've yet to have enough storage space at my residence. <grin>

How To Do a Market Study for Your Area

If you are already a renter of a storage unit, then you already know most of what there is to know about this operation. When you access your space, you see the amount of traffic and you're somewhat familiar with the vacancy rates, if there is vacancy at all.

Prior to constructing my own units, I rented two large spaces from the only “big player” in town for more than two years. When I began contemplating making an investment into my own complex, I really was only concerned with vacancy rates and if I could be price competitive with “big player”. Having both of these values would allow me to make cash flow projections and evaluate the investment as a whole, and obtaining this information is surprisingly easy.

To ascertain vacancy, I simply began riding through the complex [where I rented space] 2 to 3 times per week. Almost all complexes I've seen are “provide your own lock”, so very simply, if the door has a lock, it's a rented space, if it doesn't, it's empty. As for price, it's as simple as calling around and getting the various prices for corresponding spaces over the phone.

From a former life, I had some experience in the construction costs involved in “warehouse type” structures. My “research” on vacancy indicated that most complexes stayed virtually full and many space sizes had waiting lists. So with my competitor's pricing, my estimated construction costs, and anticipated vacancy rates, I was able to draft a crude spreadsheet to calculate cash flows and returns. I also made that available to REHP readers and emailed it to several of you at that time.

Market Consideration: Is There Room for Another Player?

This is the only area on evaluating this investment that I see as subjective. You will just have to use your better judgment, calculations, and “go with your gut”.

I can tell you that at least for my area, closer examination of the market showed that there was more room for players than perceived. First glance shows storage units in this area are EVERYWHERE. But the details show that there are basically two types of self-storage complexes, and between the two is a mighty gulf.

On one hand you have the small timers, these are guys who've converted sheds, shacks, barns, and otherwise existing structures on their property into storage space. They're cheap, they're old, they have no security, they're nasty, they're “word of mouth” outfits, and for every legit/professional operation, there are 100 of these small timers.

On the other hand, when I began to look for new, clean, secure, organized, more professional complexes, I only found 2 in my area, of which, one was where I was renting. My gut told me that the capital required [significant to Billy Bob, but not to those FIRE'd], not market demand, was what made this situation what it was. This convinced me that the barriers were at least substantial to most, and it meant that the storage landscape in my area, as I saw it, only had 2 players, not 200.

Are There Operational Advantages of Other Types of Rental?

In my mind, this is the defining difference between Self Storage and any other type of rental real estate. Without question, these dynamics were the most convincing factors in my decision. It seems to me that Self Storage Rental has all the upside aspects of any rental property, i.g. cash flow, tax advantages; but isn't subject to the downsides and negatives of residential and most commercial rental property.


Just to name a few:

1. No one LIVES there, so complaints are rare
2. There are no utilities, no leaky faucets, lawns to mow, or plugged toilets.
3. The buildings are metal and concrete slab, hard to damage, cheap to repair.
4. Monthly rents are low per customer, and most anyone can “pay the rent”
5. Eviction laws favor the owner, not the tenant

So What is the Return?

Following are the #'s from my investment. Naturally, YMMV.

Land Costs [Previously Owned]: $21,600

Construction Costs for 49 Units: $83,400

Total Capital Costs: $105,000

Current Monthly Rents [After 6 Months Average]: $3150

Average Monthly Expense [Tax, Insurance, Power (lights)]: $180

Annualized Gross Rents [Based on Current]: $37,800

Annualized Expense [Based on Current]: $2,160

Monthly Net Income [Based on Current]: $2,970

Annualized Net Income [Based on Current]: $35,640

Occupancy [Based on Current]: 91.9%

Annualized ROI [Based on Current]: 33.94%


The numbers above ignore the following:

Depreciation deductions, unforeseen maintenance, lawsuits, legal fees, price wars, etc… These are rough numbers and there is give and take both pro and con.

Additionally, I have enough land to double the amount of storage space. With each addition, and assuming occupancy rates remain similar, my return should increase as the fixed land cost is spread across a larger income stream.

Location: Does It Matter?

Yes and No. I think it depends entirely on what type of complex one wishes to construct.

I previously mentioned the “two types” of operations in this area. The more legit, professionally operated complexes are in higher traffic, non-rural locations. Conversely, the small players seem to have their units anywhere and everywhere.

My complex is on a state highway that has a traffic count of 17,000 vehicles on a daily basis, per G.D.O.T. That's a busy little road for this area.

While traffic count is certainly worth something, I believe that above all things, being in close proximity to apartment complexes, subdivisions, and residential areas of any type is of the greatest benefit to a storage complex. If that happens to be in a rural area, so beit, and bully for you, as the land will be much more affordable.

One “sweet spot” that someone may be able to capitalize on is to keep an eye out for property that has no sewer service and will not meet “perk” requirements for a septic system. Surprisingly, a lot of folks see this property as “useless” since it can't be built upon, so it can be purchased for pennies on the dollar. Find such a piece of property located close to residential concentrations and you've likely got a goldmine.

Types of Land: Does It Matter?

Yes, it matters. Simply put, flatter is better, provided there are no risks of flooding or drainage being diverted to your “flat” property. I had 11' of fall from the top of my property to the road frontage. The moving of the dirt and compaction of soil for building pads cost me an additional $8500.

Also, unwooded property would be preferable to me. Anyone who has ever dug and poured concrete footings where trees once were can attest to the PITA that roots are when beginning a construction. Best case is flat, no trees.

Power Lines and Property Set-Backs

Be aware of your county or city ordinances WRT the required set back of your structure from each property line. Additionally, there are typically set back requirements from any existing power lines that may cross the property. The set back for both of these in my area is 15'. Knowing this up front is important, as it IS possible to get knee deep into construction only to have a building inspector point this out to you, several thousand dollars later.

D.O.T. and Entrance Considerations

If your property will be located on a state or federal highway, you should contact either the State or Federal D.O.T. as a courteousy to learn if your drive entrance must meet certain specifications, or if it can be equivalent to a residential drive [low or no cost].

Frankly, this was one surprise and unplanned expense on my construction. I did, as I recommended, contact GDOT in advance, and they advised that a graveled residential entrance would suffice, as storage buildings aren't high traffic facilities. Simple enough, and very cheap, I was thrilled.

About 6 weeks after my buildings were complete and rented, the GDOT contacted me demanding that I install a commercial entrance. I had no choice, but naturally, had questions as to the change of heart. A meeting on site with the GDOT engineer revealed [off the record] that the only competitor in town had complained about my entrance because they, unlike me, had been required to install a commercial drive and I had not.

Commercial entrances aren't cheap, for one meeting our state's specifications, it runs around $5000~$7500. In addition to this, there is a cash flow issue as the state requires that you post a $25,000 bond while your entrance is constructed. For those unfamiliar with bond issues, it is so that if you “muck it up”, the state can come in and “do it right” at your expense.

If your facility will be located on anything besides a county road, entrances are important. Traffic, line of sight, and several other factors will impact what is required for your entrance.

Zoning Considerations

There is no need to go into significant detail on this.

If your area has zoning ordinances, you must learn if your property, or prospective property is zoned accordingly for a self-storage site. A call to the Building Inspector or Land Use department will likely give a quick answer.

Drive/Parking Lots: To Pave or Not to Pave

The drive and all drivable areas of my complex are graveled. I have seen storage complexes in Atlanta and less rural areas than mine that are paved. But in a rural area, I'm not sure why paving ads any value that a customer would appreciate and would be willing to pay for. To pave my complex would cost somewhere in the neighborhood of $40,000. That's a lot of money, not very well spent IMO, and it's a substantial hit to ROI.

Properly applied gravel will eventually become as smooth and durable as pavement. Soil that is soft, muddy, or even compacted or “hard ground” should first be graveled with large stones, such as a #3 or #4 stone [baseball size]. With traffic, these stones will mar into the mud and provide a bedrock base for decades to come. After those larger stones have settled, future maintenance applications every couple of years of “Crusher Run” [small/fine gravel] will fill in the gaps and make for a very smooth, very hard, and inexpensive driving surface.

Drive and Mobility Considerations

The drive entrance to your complex should be a minimum of 40'. Additionally, I suggest that 30' of space exist between storage buildings, and 20' on each end. This will allow cars to pass freely and move to and fro even if other cars are parked and accessing their spaces.


Type of Building Materials: Block, Metal, What's Best?

I frequently see storage buildings constructed of block walls and shingled roofs. Unless someone owns a block or shingle business, I have no idea why this type of structure would be selected for a self-storage complex.

My complexes are constructed with metal walls and metal roofs, which is 1/3rd, the cost of the above. The metal is durable, and has a warranty of 50 years, which should be contrasted with the 20 years that a shingled roof provides. Additionally, it is maintenance free requiring no paint or upkeep. And regarding durability, should a tenant poke a hole in an exterior wall, replacement metal sheets are cheap, and take only a few minutes to replace.

How to Find a Contractor

Had I done this several years ago, I would have likely built the structures myself. They come in from the metal manufacturer as a kit, and they are surprisingly easy to put together. Being in retirement though, combined with the fact that I was unfamiliar with storage buildings specifically, I felt it was best to use a contractor.

I was fortunate enough to find a contractor who was part time retired after 38 years of working as job foreman for a local commercial construction company. This is a beautiful thing, because he has none of the overhead, and so I didn't have to pay for any of the overhead for my construction. My retired contractor was basically half price when compared to the quotes from the commercial outfits in my area. Additionally, he had a wealth of experience that I drew upon throughout the entire construction, and since he basically didn't need the money, I felt he was someone I could trust.

As to how one goes about finding a semi-retired contractor, I'm not sure. I met mine while I was renting storage space from my [now] competitor and we took it from there. Ask around, I'll bet someone near you knows of someone like this. Retired people typically associate with other retired people, ask a few of them and see what turns up; it could mean a doubling of your ROI.

Charge Rates and Construction Costs

An easy estimate for what you will spend on your structures, if built in the same manner as mine is around $6 per square foot. Several factors can cause this to fluctuate a buck or two in either direction, but $6 per foot is close enough for any calculations you need to do. You can likely plan on collecting around $10 per foot in rents, with no allowance for expense, vacancy, taxes, or insurance.

My contractor gave me a choice of paying him and his crew by the hour or paying him a turnkey package price. He also added, as I already well knew, that if he quoted a turnkey price, there would be quite a bit of padding in the quote, as mistakes happen, even with 38 years of experience.

I checked a few references on how “busy” he and his crew kept themselves and decided to go the hourly rate. It was literally as simple as picking up a time sheet from him once per week and cutting them a check. He was responsible for all worker's comp and payroll issues. Never once did I catch the crew wasting time on my watch, and when I expand, I will deal with them on this same hourly basis. Materials were invoiced to me, so there was no contractor's markup at play, it was a good deal.

To Climate Control or Not?

I'll admit that before, and even now, I'm intrigued by the premium rents collected by storage units that are climate controlled. But try as I have, I've done extensive market research in this area and I cannot build a model where the payback equals that, or even comes close to that of non-climate controlled space.

I have toured the facilities of would be competitors, and put together cash flow models and I'm confident that I know within a couple of points how much money they're making [or losing]. With climate control, vacancy rates are drastically higher, and operating costs can be erratic due to weather and utility costs. Climate control may work in your area, but not here, even in the humid South where you would imagine folks would spring for the extra fee.

My spaces have no heating, no cooling, no power, and no water. There's not that much that can go wrong. Pretty simple.

What Size Spaces Should I Construct?

I believe I have hit the sweet spot on space sizes. I have never once had to tell a customer that I don't have the size that fits their needs. Following are my recommended spaces:

6'X10' About the size of a walk in closet

10'X12' The size of a VERY small bedroom

12'X20' The size of a single car garage

12'X30' Approaching the size of a tractor trailer

Additionally, my recommendation is to go with roll up doors that are as wide as possible for the wall you are installing the entrance on. Your customers will appreciate it.

Design Consideration: Eve Heights

The standard eve heights of storage spaces are 8 feet, which is the height I chose for my first row of buildings. After completing the first row, I wondered if the costs were significant to increase the eve height to 12 feet. Before starting the second row, we calculated the added costs and found that they were negligible; a slight bit more in material and no added labor.

This is a judgment call because it may certainly mean that a customer may not have to rent a bigger space because you've provided ample cubic feet for their needs. I, however, happen to like the added eve heights and feel they are a unique feature that my competitors don't have, for essentially the same price. My second and third rows were constructed with higher eve heights.

Design Consideration: Turn Down Footings

Those familiar with construction may know what a “turn down footing” is. For those that don't, storage spaces [and most metal buildings] are built on a slab that is poured at the same time as the footing using form boards placed perpendicular to the ground to shape the slab side walls.

My contractor and I had an idea that if we could find a way make a step up just beyond each space entry, it would prevent blowing rains from entering the spaces and would likely make a lot of customers happy. We accomplished this by placing 2X10's running parallel to the ground on top of the form boards used for the slab sidewalls.

If you don't follow this, the result is a 1.5 inch step up occurring 10” inside the perimeter of the slab, which accomplishes the shut off for “rain proofing”. Of all my customers, I would estimate 50% have commented favorably on this feature. None of my competitors have this, to my knowledge.

Design Consideration: Insulation

Non-climate controlled storage buildings do not need insulation along the metal walls. However, it is my strong recommendation that you install insulation along all ceilings, as it will prevent condensation from forming on the ceiling and eventually dripping into the rented space.

Hanging of the Doors

Storage spaces have roll up metal doors. They roll and unroll based on a coil spring in the assembly that can be adjusted. Temperatures effect this coil spring so if your doors are being hung and adjusted in the winter, have them adjusted a bit tighter than “acceptable” as they will loosen significantly in the summer time with the expansion of the spring. Obviously, vice versa if you are building in the summer months.

Lighting of the Complex

I intentionally lit my complex up to such a bright level that airplanes could easily confuse it with a landing strip. <grin> Seriously, I recalled the poor lighting from the spaces that I previously rented [from my competitor]. I remember going in there many mornings in the pitch black dark to get my boat, and while hooking up, thinking anyone could walk up and knock me in the head with little concern for being seen. I didn't like it, and I imagine women customers simply wouldn't stand for it.

Almost every customer has complimented me on the complex lights and it makes them feel “safe”. It's a $500 ad that your customers will love, do it.

Security Gate, Or Not?

It took me a while to make this decision.

Automated security gates are pricey, around $6K, so it's no small decision. As I mentioned earlier, there are two types of complexes, and a mighty gulf between. The complexes that I have seen that are legitimate all have security gates, the ones that aren't, don't.

My market research into complexes in my area had indicated that in the rare cases of vandalism and burglaries, 99% of them were “inside jobs”, meaning one tenant, with access to the complex, broke into the space of another tenant of the complex.

My security gate has a keypad at the entry where tenants enter a PIN for automatic opening. It is also wired to a printer in my “shop” which keeps a record of what PINs have been entered and at what time.

Bottom line is, because of this, a security gate will likely not prevent a single burglary incident, but your customers don't know this, and I'm pretty sure this will be a consideration of theirs in selecting to rent from you.

It's an intangible, but I decided to opt for the gate.

Do I Need a Security Fence?

As with the security gate mentioned above, a security fence is something that customers will ask about, but it doesn't really provide any security.

My legitimate competitor has a chain link fence around the entire perimeter of their complex. Six-foot chain link fence with 3-strand barbed wire on top is around $7 per linear foot, and would have added $7,000 to my construction costs, which I considered excessive and not a good value.

I opted instead for “poles and cables” around the perimeter of the property. The poles are 4” steel pipe, painted “Safety Yellow”, with 3/8” galvanized steel cable strung taughtly between them. The poles and cable will prevent a non-tenant from driving up to a space and conveniently loading up. They will not prevent from someone hell bent on getting something if they're willing to carry it a distance, but neither would an expensive chain link fence. Total cost, $900.

Camera Surveillance

I've seen complexes in the city that have camera surveillance for security. I opted not to do this because my competitors don't have it. At some point in the future, I may add “dummy cameras” if customers begin asking.

Operating Capital

One point that will be vital to leveraged investors, which was not an issue with me, is the amount of operating capital that will be required to meet debt obligations while waiting to reach full occupancy.

My spaces took around 2 months to fill to effective capacity, and another 2 rows of units will go up sometime in July while we're in The Keys. I have no idea how long a “fill up” will take in your area, but if leveraged, don't overlook the capital required to sustain the gap.

Signage and Timing

As soon as the beams were up on my first row of spaces, I had a large and lighted sign made and I installed it myself down of the highway front. I had a handful of people who lived nearby on a “waiting list” to move in when construction was complete. I imagine someone leveraged would want to take this approach as well.

The majority of renters, however, did not begin calling until all construction had ceased and all equipment had been removed from the premises. Even though the sign said “Now Renting”, I imagine the construction equipment made it appear to be an unwelcome or incomplete sight.

Advertisement

I believe that my spaces would have filled up eventually with just my sign on the highway. However, an empty space, even for a month, is a waste of money. My only source of advertising is a full-page “centerfold” ad in a local “trader” magazine that is printed weekly, and sold locally in our convenient stores. The ad costs me $125 per month, and reaches around 15,000 folks. I estimate that around 80% of my renters contacted me as a result of the ad.

The effectiveness of The Yellow Pages should not be overlooked by the success of the above. I would guess that most folks looking for storage space initially turn to the back of their phone book and start promptly calling complexes. The Yellow Pages comes out in September in my area, my construction started in October. I overlooked the need to get an ad in last year's yellow pages and those reading this would be wise to coordinate their construction timing a bit better than I did.

Promotions: Sign Them Up at Any Cost

All of the people I have met through this storage complex have reaffirmed what I already knew: People are lazy, by nature.

Do whatever you have to do, but get customers signed, and in your space. Once in a space, most people don't want to move the stuff again and would rather pay the rent to you monthly than have to labor loading and unloading their pickup truck.

If you have to give away free rent for a week or a month to lure a customer, what does it matter? If you have empty spaces sitting idle, they are profiting you no more than a free-rent tenant who will be a paying customer next month.

How to You Sign Them Up, Do You Have Someone On Site?

I have no one on site, and I don't have an office. I have a “shop” that is plumbed, heated, and cooled that houses my boat and all of my tools. This is my little hideaway where I take things from home to piddle with them as I want to. That said, I don't spend a lot of time there, and I don't meet customers in that space, though it does have a “drop slot” in the door where payments can be deposited 24/7.

The sign on the highway that I mentioned earlier has my cell phone number on it. The only way someone can become a renter is to call and make an appointment with me. Because of the security gate, they have to meet me there, and they can't enter the property without me.

Sometimes, and most often, I only agree to meet potential renters once per week, all on the same day, within the same hour. Sometimes, if I'm bored and have nothing to do, I'll meet someone right away. Sometimes, and very frequently, I get the call when I'm on the lake and I tell them they'll have to meet me when I return to put my boat back in it's bay.

In other words, this is something that I work to my convenience, not theirs. That's suitable as a retirement investment, as far as I'm concerned.

When we are out of town or traveling, I have a teenager from my church that is “on call” for me. If I get a call to rent, I simply call him and he makes contact with the customer to set an appointment. For this, I give him the security deposit for the customer [$20], which is big money for 30 minutes work to a high school senior.

It takes me about 10 minutes to sign someone up. It takes me 5 minutes to get home from the complex. It's not a long and drawn out ordeal.

Month to Month Rental Agreement

I require all renters to sign a month-to-month rental agreement. My attorney reviewed and approved it for use in the State of Georgia. It is a two-page Word document. It may not be applicable in your state, but I will gladly email it to you upon request.

Who Provides the Lock?

Renters provide their own lock, period. They must leave one of the two lock slots empty for management use, in the event that they don't pay on time.

Assessment of Late Fees

I run invoices on the 15th of each month. Bills are due on the 1st of each month. There is a 10-day grace period, and on the morning on the 11th, if the rent isn't paid, I put a management padlock on their space, which prevents their entry until the rent, AND $10 late fee is paid. I probably make an extra $100 per month from late fees, FINE.

On the 21st, I can have the person legally evicted per the laws in Georgia. Eviction can be selling the goods at public auction or throwing things in the dumpster. I haven't had to do this yet.

Is it Work?

My view on this is that anything in retirement short of having your entire net worth in an index fund is work, at least to some extent.

My objective in taking on this investment was to (a) find a low maintenance investment offering a high rate of return and (b) to birth an entity that my 13 y/o son could cut his baby teeth on in the world of commerce. I believe this investment has accomplished both.

The time of mine it took to design my storage buildings, 6 hours.

The time of mine it took during construction, 1 hour each day.

The time of mine it now takes to operate the complex, 2 hours each week.

The time of mine it takes to generate invoices, 2 hours each month.

Lost in this, however, is the 2 hours each Saturday, that Junior has to spend weed eating, spraying Roundup, and picking up trash. You may not have a 13 year old, so that may be YOU doing that. <grin>

It is not uncommon for me to spend 40 to 80 hours researching a particular stock for the purposes of investing. Additionally, there are the several hours that I routinely spend studying quarterly reports and 10Q's. In this day of poor corporate governance, sadly, that time required is ever increasing.

That said, 2 hours per week for a monthly income of $3,000 is hardly work, at least from where I sit.

Closing

There are one million nuts and bolts details that have been omitted as I've been editing this post for weeks now. For those interested, I will gladly answer any of your questions and provide whatever insight possible.

Golfwaymore

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Author: golfwaymore Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107193 of 756651
Subject: Re: Self Storage as an Investment Date: 5/15/2003 1:19 AM
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An Editing Oversight:

Charge Rates and Construction Costs

An easy estimate for what you will spend on your structures, if built in the same manner as mine is around $6 per square foot. Several factors can cause this to fluctuate a buck or two in either direction, but $6 per foot is close enough for any calculations you need to do. You can likely plan on collecting around $10 per foot in rents, with no allowance for expense, vacancy, taxes, or insurance.


These two values should be reversed.

Golfwaymore


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Author: whyohwhyoh Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107195 of 756651
Subject: Re: Self Storage as an Investment Date: 5/15/2003 1:32 AM
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So with this type of business, how long will it take before you go into full retirement?

--
whyohwhyoh

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Author: golfwaymore Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107196 of 756651
Subject: Re: Self Storage as an Investment Date: 5/15/2003 1:43 AM
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So with this type of business, how long will it take before you go into full retirement?
--
whyohwhyoh


I dont know.

Lord willing, and if the creek doesnt rise, maybe someday.

Golfwaymore,
Fingers Crossed

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107200 of 756651
Subject: Re: Self Storage as an Investment Date: 5/15/2003 3:08 AM
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Excellent post, Golfwaymore. Thanks for making the effort.


While you provide a good introduction to the self storage business, perhaps even more importantly you show the mind of a businessman at work, assessing what is worthwhile and what is not. That is of particular value to anyone contemplating starting a business, in my view.

My most serious criticism is that you haven't assessed the risk of over expansion of the service you offer. The ease with which you estimate the revenues you might expect to receive, and analyze your competition can be done by others. A major risk of any kind of real estate investing is that you are building for the long term, but the attractive returns you are experiencing should be EXPECTED to cause others to enter the business, probably glutting the supply and bidding down rents and increasing vacancies. Competetors might install more bells and whistles such as full time staff, paved parking lots, increased security and so forth. This might sharply cut into your ability to fill vacancies and raise your expenses significantly if you try to match them.

Indeed, your major competetor probably cannibalized the competition when he opened up, and while you met the level of service your competetor provided, you didn't feel a need to significantly exceed it. New competetors might do just that.

This lack of assessing the impact of new suppliers of your service is the major weakness of your study that I see. I'd be interested in your comments.


Again, excellent post. Thanks for insights on how you assess a business opportunity.




Seattle Pioneer


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Author: eurotrash01 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107203 of 756651
Subject: Re: Self Storage as an Investment Date: 5/15/2003 8:07 AM
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HI GWM...great post...


Question - I'm not planning to build one of these facilities, but I understand their appeal to you. I've not bought any of the REITs in this field for the reason that I'm afraid of the lack of barriers to entry in self-storage and the risks of overbuilding are very real, IMHO. Especially in low barrier to entry markets...like...uh...yours.

That's why I'm especially interested in hearing from you on the topic. Who else is in business in your area? What does it take to differentiate yourself from other mom-n-pop operations in SS? Do any ot the major REITs compete there with the private owners?

I'm probably wrong, but my impression is that this is one area where you could quickly go from being a business with nice math (as you've illustrated) to one with bad math due to margin contraction as a result of overbuilding at some stage, and lack of differentiation from your competitors.

Again, thanks for the good post. I appreciate outside-the-box-inside-the-self-storage-facility thinking.

ET

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Author: eurotrash01 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107204 of 756651
Subject: Re: Self Storage as an Investment Date: 5/15/2003 8:09 AM
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Wow -

I just read SP's post after writing mine. Great minds think alike, I guess. Or lame ones.


ET

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107207 of 756651
Subject: Re: Self Storage as an Investment Date: 5/15/2003 8:43 AM
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Where I live in Houston, self-storage is more expensive than leasing an apartment.

A 20 ft x 10 ft storage locker is $248/month. That's $1.24/SF.

You can rent a 750 SF apartment for $545/month. That's $0.73/SF.

Maybe it makes more sense to lease an apartment to store your junk? <grin>

intercst

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Author: CatherineCoy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107211 of 756651
Subject: Re: Self Storage as an Investment Date: 5/15/2003 9:02 AM
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A major risk of any kind of real estate investing is that you are building for the long term, but the attractive returns you are experiencing should be EXPECTED to cause others to enter the business, probably glutting the supply and bidding down rents and increasing vacancies.

Here in Southern CA, I often see signs on self storage facilities for "free month's rent" and other inducements--freebies that landlords offer when advertising for tenants in a soft rental market.

Fine post, GWM.


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Author: Dagrims One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107221 of 756651
Subject: Re: Self Storage as an Investment Date: 5/15/2003 10:13 AM
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Thanks for the informative post, golfwaymore. It was truly worth waiting for. I already printed it out and will be taking some time to really consider the possibilities.

Chris

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Author: golfwaymore Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107223 of 756651
Subject: Re: Self Storage as an Investment Date: 5/15/2003 10:37 AM
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Seattle Pioneer writes,

My most serious criticism is that you haven't assessed the risk of over expansion of the service you offer. The ease with which you estimate the revenues you might expect to receive, and analyze your competition can be done by others. A major risk of any kind of real estate investing is that you are building for the long term, but the attractive returns you are experiencing should be EXPECTED to cause others to enter the business, probably glutting the supply and bidding down rents and increasing vacancies. Competetors might install more bells and whistles such as full time staff, paved parking lots, increased security and so forth. This might sharply cut into your ability to fill vacancies and raise your expenses significantly if you try to match them.

Well I did mention that the post ignored price wars and several other issues...

But indeed Seattle, this is a risk in any venture, as you state, but not one that I didnt strongly consider. I left it out of my post, for the sake of brevity, but I figured it would surface in follow up discussion.

I have three thoughts on your question:

1. In areas such as Atlanta, rents have not been "bid down" by big players with deep pockets entering the game thus making the landscape more competitive. In othe words, I believe the market is a long way from it's peak, but as with any asset class, it WILL reach a peak.

What I HAVE seen in Atlanta is that land costs are astronomical compared to here in my rural area, and that fixed cost has been factored into rents that are substantially higher than mine.

2. I have pretty deep pockets myself, no boast intended. Mind you, not as deep as the REITs do, should they come into this area, but they're deep relative to the citizenry investors here.

I'm only saying this to lay down the point that with a completely unleveraged investment, and at a return somewhere north of 30%, someone in my situation can get fairly competitive in a price war, if necessary, without turning the thing into a bad investment.

A leveraged investor has his line in the sand somewhere near where his debt obligation is. My line in the sand is basically at whatever point I feel that the return is no longer worth the hastle. For me, that's somewhere around a 15%~20% ROI.

3. This investment, for me, is a 3 to 5 year investment for various reasons. Chiefly, my son will turn be 18 in five years, and the plan is to move far away from storage facilities, in the sunny Florida Keys. [Yes, there is the thought of handing them over to him.]


Between now and then, selling the complex to a high bidder isnt out of the question should income cause tax issues, or should I see competition on the distant horizon.


Golfwaymore





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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107224 of 756651
Subject: Re: Self Storage as an Investment Date: 5/15/2003 10:46 AM
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Heh, heh!™


<<Maybe it makes more sense to lease an apartment to store your junk? <grin>

intercst >>


Just to keep the perpetual discussion going, I'd say that more people prefer to buy a place to store their junk than to rent one!


The smartest people probably try to pare back their junk level to avoid either.



Seattle Pioneer
Enjoying a modest success in de-junking his life

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Author: golfwaymore Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107225 of 756651
Subject: Re: Self Storage as an Investment Date: 5/15/2003 10:50 AM
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Euro writes,

That's why I'm especially interested in hearing from you on the topic. Who else is in business in your area? What does it take to differentiate yourself from other mom-n-pop operations in SS? Do any ot the major REITs compete there with the private owners?

I'm probably wrong, but my impression is that this is one area where you could quickly go from being a business with nice math (as you've illustrated) to one with bad math
due to margin contraction as a result of overbuilding at some stage, and lack of differentiation from your competitors.


Good questions, to be sure.

The outfits that I would call competitors are privately, or family owned.

As for differentiation between myself and the "mom/pops", it's really as simple as being and looking organzied, with a phone number, and fencing, and security gates, a "you know it when you see it" kinda thing.

There are no REITs competing in my area, though I believe a couple have entered the Atlanta market. I am not aware of any REITs that compete in rural areas, but it wouldnt surprise me if one came along. I do know that if a REIT does enter this area, they likely dont want to be across the street from my complex, any more than I want to be across from them.

My estimation is that there is alot of room in my area for competiton and it will most certainly come, sooner or later.

And regarding the math could go bad in a hurry, there is certainly that risk, as with any investment. At the current return rate, if the "good times" last 3 years, no matter what happens I'll have broken even.

With any luck, the math wont go bad any faster than it did on my EMC or YHOO. <grin>

Golfwaymore




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Author: golfwaymore Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107228 of 756651
Subject: Re: Self Storage as an Investment Date: 5/15/2003 10:58 AM
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Catherine points out,

Here in Southern CA, I often see signs on self storage facilities for "free month's rent" and other inducements--freebies that landlords offer when advertising for tenants in a soft rental market.

I wonder if this is due to a soft rental market, or due to an owner who initially takes my approach and tries to get them in at any cost, knowing that they stay, once landed?

The reason I ask is that your reports seem to indicate that residential rental property in your area is going gangbusters. It seems odd to have high demand for residential rental, but low demand for storage space.

That said, the exact opposite true in my area. We have low demand for residential rental, and high demand for self storage.

Everyone I know owns a home. It's a large and diverse country.

Golfwaymore


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Author: markr33 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107237 of 756651
Subject: Re: Self Storage as an Investment Date: 5/15/2003 11:41 AM
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Way to go GWM ... Evening on the Fool Award !!!

A well deserved award, I might add.


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Author: ataloss Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107242 of 756651
Subject: Re: Self Storage as an Investment Date: 5/15/2003 12:15 PM
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I'm only saying this to lay down the point that with a completely unleveraged investment, and at a return somewhere north of 30%, someone in my situation can get fairly competitive in a price war, if necessary, without turning the thing into a bad investment.

exactly, I think a REIT would be hard pressed to have lower expenses (unless you are paying your son a huge salary for whacking weeds )

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Author: gurdison Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107249 of 756651
Subject: Re: Self Storage as an Investment Date: 5/15/2003 12:32 PM
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<The reason I ask is that your reports seem to indicate that residential rental property in your area is going gangbusters. It seems odd to have high demand for residential rental, but low demand for storage space.>


Golfwaymore:

I would assume that this is probably due to the different markets. I have been a PSA shareholder (primarily through their preferred shares). They are the largest storage company in the country. They have some 90 million SF of net rentable space in some 80 US and Canadian cities. They recently hit a few bumps in the road, not because there are too few customers, but because of many others competitors in the field. It is generally a low barrier to enrty market. I would think that they would have a presence in Atlanta, but not necessarily in your area.

I think what you have done is to seize on an excellent opportunity in your particular niche market. In my area (NJ), we have seen many self storage buildings go up. In the last few years I would estimate that around 10 new facilities have gone up in a five mile radius around me. All of them are paved, air conditioned + heated, visable security, cameras, etc. I have no idea what the going rates are as the idea of renting out space for my "stuff" is about as foreign to me as wanting to take on a 60 hour per week job. The fact that so many have sprung up tells me that there is lots of demand. How profitable it is for each owner is another story.

Like most RE types I do not let the fact that a business may not have me as a customer exclude me from being a potential investor. PSA and PSA-T have been good investments for me. Just like with FI/RE, I think I am out of step with most of the general population with storage and stuff. I figure that you know your area. Your storage units would have cost you a lot more to build and maintain up here. Working the numbers on building here may have kept you out of the game. OTOH, the high end units built here would most assuredly have a much lower profit margin in your neck of the woods.

To use an old car analogy, your chevy would not sell as well here as the standard (rightly or wrongly) is a Cadillac. Conversely, the Caddys would be a sure loser of an investment in your local market where the Chevy is the best that the market wants. You have clearly placed yourself above your "rent a wreck" competitors, but have not cut off your nose to spite your face by building Caddys that would be sitting on the lot. I think this goes back to the heart of the old saying that all real estate is local.


BRG


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Author: HedonistiX Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107263 of 756651
Subject: Re: Self Storage as an Investment Date: 5/15/2003 2:16 PM
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Author: golfwaymore Date: 5/15/03 12:51 AM Number: 107191
... In fact, I'm not anti-anything when considering various asset classes. As I've said in jest many times, were investing in brothels legal, I'd probably be the first to pony up ...
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

golfwaymore:

Congrats. on the EotF award!

Careful what you wish for (not only industry diversification, since it's in Australia it also will be an 'geographical' diversification):
http://news.ninemsn.com.au/today/story_48205.asp

0718 Daily Planet
Reporter Nick McCallum
Subject: Shares in the Daily Planet have risen further, as investors flock to the world's first listed brothel. The Daily Planet began trading on the Australian Stock Exchange at 11:00am AEST (Thurs). The stock surged to 74 cents, well above the initial float offer of 50 cents.
Viewer info: www.dailyplanet.com.au



These guys even had Heidi Fleiss pitching the company.


CHEERS,
--H




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Author: admiraltroll Big gold star, 5000 posts Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107275 of 756651
Subject: Re: Self Storage as an Investment Date: 5/15/2003 4:21 PM
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Hi golfwaymore,

Congrats on your dinner on the Fool.

You said
As I've said in jest many times, were investing in brothels legal, I'd probably be the first to pony up. <grin>

Well I suggest that you pony up :-)
http://www.ananova.com/business/story/sm_775888.html
========================================================================
Australian brothel trades on stock exchange

Shares in a brothel have almost doubled in value after it began trading on the Australian Stock Exchange.

The Daily Planet, the country's first publicly listed brothel, received some promotional help from former Hollywood madam Heidi Fleiss.

"How can you go wrong with sex?" said Fleiss, while visiting Melbourne for the launch.

Shares at The Daily Planet were offered at A$0.50 cents each, and opened 40% higher at A$0.70. By late trading, shares were up 90% to A$0.95.
=======================================================================

Best Regards
Philip



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Author: admiraltroll Big gold star, 5000 posts Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107276 of 756651
Subject: Re: Self Storage as an Investment Date: 5/15/2003 4:23 PM
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Sorry should have read the thread before posting

Regards
Philip

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Author: Hyperborea Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107279 of 756651
Subject: Re: Self Storage as an Investment Date: 5/15/2003 5:06 PM
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You said
As I've said in jest many times, were investing in brothels legal, I'd probably be the first to pony up. <grin>
-----------

Well I suggest that you pony up :-)
http://www.ananova.com/business/story/sm_775888.html
==================
Australian brothel trades on stock exchange


Who's going to do the "due diligence"?

Hyperborea

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Author: workwayless Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107284 of 756651
Subject: Re: Self Storage as an Investment Date: 5/15/2003 5:47 PM
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Great post, GWM!

Couple of comments/questions

- You could make the location close to your house. This seems like a good idea for any business that ER is considering to participate in hands-on.

- The combination of low land and construction costs made building from scratch an attractive combination. I'm curious. Did you look into any existing for-sale SS to see how they stacked up against building new? If so, do you think this is still a good investment even if you buy an existing business?



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Author: maracle Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107289 of 756651
Subject: Re: Self Storage as an Investment Date: 5/15/2003 6:06 PM
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Great post,

What is the benefit of climate controlled? I mean, what do people really store that needs to be climate controlled? I live in Michigan, would cold weather be more a problem than warm weather in Georgia? In truth, here we probably get weather as hot as down there and also get the cold too.

How much is a 6x10 at your place? I've noticed when I go into u-haul places they have self storage, and it is WAY expensive.

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Author: nmckay Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107291 of 756651
Subject: Re: Self Storage as an Investment Date: 5/15/2003 6:25 PM
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Just cause I'm an architect and I have to tweek everything, I'll offer a two-fer that might be worth checking out.

Everyone of those storage buildings has a sloped roof. Why not slope them optimally, and put photovoltaic cells on the south facing rooves. You could start small just adding enough to pay for your lights and if you're energetic (sorry for the pun) you could be a net seller of power to the grid. You don't need batteries. You sell power during the day (when its expensive most places) and buy it at night (when its cheap most places. The PVs will last longer than your rooves.

The rule of thumb is that you pay $10,000 for a panel array that will deliver 1KW/hr. However, you can usually get state or federal rebates for this kind of stuff. Some utilities will help you as well. You could roll the PV cells into your construction loan and have free energy. Then the thing really is a money tree. Starve an Arab and FIRE, too.

<cue evil laugh>

nmckay

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Author: markoose Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107307 of 756651
Subject: Re: Self Storage as an Investment Date: 5/15/2003 8:43 PM
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golfwaymore,

Thanks for the great post. Definitely one of the better ones I've read in a while.

However, it appears as though you've forgotten one important thing -- photographs!!

We'll be looking forward to the link to those digital pics.


; )

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Author: captbuddha Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107449 of 756651
Subject: Re: Self Storage as an Investment Date: 5/16/2003 5:25 PM
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Golfwaymore,

I love what you've done to provide you with the extra
income; that you'll receive from your storage rents on
into the future! Being totally disabled (but still able
to get around with a cane) i see maybe a possiable
future as a Storage Landlord myself. But; being only
45 years old now, & having lost everything without
ever investing for my future before in injured myself
, it will probably take me several years to grow the
amount of money needed to do as you have done.

Q.: Do you have the address or phone number to the Co.
you used & mentioned in your post; that provided the
"Metal Manufacture Kit" to build your storage business;
so i'll have it when i need it?

**********Thanks in advance!***********captbuddha

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Author: Luminous1 One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107462 of 756651
Subject: Re: Self Storage as an Investment Date: 5/16/2003 6:20 PM
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Golfwaymore,

An excellent post, and a breath of fresh air on this board. As a paying Fool, it was worth the price of admission. Even though this investment idea may not be for me, the way you went through the ROI and anticipated the readers questions made it a very interesting read.

It's rare to see this type of detailed writeup without having a hidden agenda of selling a product or service. I hope you have the good fortune to enjoy many more years of golfing way more!

-L1 (who hopes to be able to return the favor to the board someday)

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Author: readyteddy Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107465 of 756651
Subject: Re: Self Storage as an Investment Date: 5/16/2003 6:37 PM
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Way back in the 1970's, I used to do some work with tax sheltered limited partnerships. I remember a meeting I went to with a bunch of investment bankers from Lehman Brothers or Morgan Stanley.. on of the big "white shoes" firms. On a personal level, these guys' idea of "self storage" was taking the yacht out of the water for the winter.

Anyway, they had been presented with this idea for a LP deal with fabulous internal ROR ...only you had to put aside any snobbish biases you might have (of which I had none anyway).

I was a self storage deal! The returns on the mini warehouses was so good they could afford to do it on expensive suburban land in the path of growth! The warehouse carried the land, which was later to be sold to developers.

May not be the case anymore, but I could see from the numbers back then it was a good little business to be in.

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Author: golfwaymore Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107543 of 756651
Subject: Re: Self Storage as an Investment Date: 5/17/2003 12:22 PM
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workwayless says,

Couple of comments/questions

- You could make the location close to your house. This seems like a good idea for any business that ER is considering to participate in hands-on.

- The combination of low land and construction costs made building from scratch an attractive combination. I'm curious. Did you look into any existing for-sale SS to see how they stacked up against building new? If so, do you think this is still a good investment even if you buy an existing business?


That would be a nice set-up workwayless. The storage units are very simple, no doubt they'd be sweet to have across the street, or within walking distance.

I DID look into purchasing existing units, well, there was one that was for sell by a gentleman with health problems. I had the following problems with it:

1. Asking price was outrageous, my quotes were telling me that I could build my own for less than half that price.

2. It was huge, bigger investment and time requirement than what I was interested in.

3. It was in the next town over, 15 miles and lotsa traffic, and as you pointed out, having these things close by is nice.

Golfwaymore


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Author: golfwaymore Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107547 of 756651
Subject: Re: Self Storage as an Investment Date: 5/17/2003 12:34 PM
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nmckay writes,

Everyone of those storage buildings has a sloped roof. Why not slope them optimally, and put photovoltaic cells on the south facing rooves. You could start small just adding enough to pay for your lights and if you're energetic (sorry for the pun) you could be a net seller of power to the grid. You don't need batteries. You sell power during the day (when its expensive most places) and buy it at night (when its cheap most places. The PVs will last longer than your rooves.

The rule of thumb is that you pay $10,000 for a panel array that will deliver 1KW/hr. However, you can usually get state or federal rebates for this kind of stuff. Some utilities will help you as well. You could roll the PV cells into your construction loan and have free energy. Then the thing really is a money tree. Starve an Arab and FIRE, too.


This is an interesting idea, but if I understand correctly, I dont think it would work in this area where have very cheap power. My dad is an EE who gave up on consulting to factories in this area because it was cheaper [in terms of payback] for folks to burn & pay for power inefficiently than it was to buy energy saving devices.

I use [on average] 32 KW/hrs per day. I think this means that I'd have to have 2 of the panels which is a $20,000 cash outlay?

Our power around here is around 8 cents per KW/hr and the complex's power bill runs around $70 per month.

I realize you said there are rebates and so forth, but look at these numbers...

With a $10,000 outlay, it would take nearly 12 years for that thing to pay for itself.

With a $20,000 outlay, [which I believe is what would be required], it would take over 20 years.

Assuming that space demand stays the same or increases, I'd be better off to put the money in more storage units, pay the power company for their power, and let the units pay for themselves in 3 years.

What did I miss?

Golfwaymore


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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107568 of 756651
Subject: Re: Self Storage as an Investment Date: 5/17/2003 2:28 PM
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<<With a $10,000 outlay, it would take nearly 12 years for that thing to pay for itself.

With a $20,000 outlay, [which I believe is what would be required], it would take over 20 years.

Assuming that space demand stays the same or increases, I'd be better off to put the money in more storage units, pay the power company for their power, and let the units pay for themselves in 3 years.

What did I miss?

Golfwaymore
>>


You missed out on making an inefficient "green" investment. The world is full of them, usuaully subsidized by the government or with higher prices being subsidized by consumers who have no choice.

You analyze the payback above like a businessman. From what I see, environmentalists frequently start with the desired outcome and then go back to look for ways to rationalize the desired outcome so they can get what they want at someone else's expense.



Seattle Pioneer

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Author: prometheuss Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107610 of 756651
Subject: Re: Self Storage as an Investment Date: 5/17/2003 7:56 PM
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<<...

What did I miss?

Golfwaymore
>>

You missed out on making an inefficient "green" investment. The world is full of them, usuaully subsidized by the government or with higher prices being subsidized by consumers who have no choice.

You analyze the payback above like a businessman. From what I see, environmentalists frequently start with the desired outcome and then go back to look for ways to rationalize the desired outcome so they can get what they want at someone else's expense.

Seattle Pioneer


Well said. It is the same sort of wishful thinking that asks for a safer (or even guaranteed), higher safe withdrawal rate or asks for low cost (or even free), high quality health care.

Regards,
Prometheuss



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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107659 of 756651
Subject: Re: Self Storage as an Investment Date: 5/18/2003 9:09 AM
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What is the benefit of climate controlled?

A buddy of mine got married, put his furniture in storage when he moved into "her" house. The furniture is fine leather; he was worried about the effects of 100 degree days in summer and freezing nights in winter on the leather. (It gets even hotter than the outside ambient temperature inside a storage shed, particularly one made of metal.)

Where we park our RV, many of the sheds are rented by "one-truck johnny" landscapers, who store chemicals which might be susceptible to heat; ditto for house painters and others. It's their "place of business" for tools and materials - a heck of a lot cheaper than an actual storefront. The only other things they need are a cell phone and a truck.

One of the sheds just around the corner from our RV is rented by a woman who is forever moving foodstuffs in and out; I think she has a catering business in her house or something, so "climate controlled" might be important for her, as well.

Finally, I know a couple of people who rent "climate controlled" for their RV's; in that way they don't have to "winterize" and put the RV in deep storage for the winter, blow all water out of all the pipes, antifreeze the pipes and drains, etc, and the rig is ready to run at a moment's notice. We don't bother, mostly because we pay $40 a month and those guys pay over $200 for the CC privilege. (There's also a sense of greater security, since ours sits outdoors and theirs is inside. We had a roof leak over the winter, which would not have been such an issue if we were indoors, as if there's a leak when you're in the rig you catch it before a lot of damage is done; I go once a month in winter to run the engine, roll the tires and charge the batteries, so a fair amount of damage could have happened.)

All of that said, I'd guess that "climate controlled" is a very specialized market, and you'd have to decide whether it's worth the increased capital investment and increased ongoing expenses to make it worthwhile if you wanted to play in the "storage" game.

FWIW: The aisleways between buildings are fairly wide at mine (A Public Storage company), but I can still just barely get my rig (36' plus a 4 foot motorcycle carrier on the front) around the corners and into position. (And I pull a car behind, even around those corners!) They have another half dozen RV's, a guy who rents a "crane-truck" by the hour, a couple of boats, and a few broken down cars in the exterior spaces.

Security was a paramount concern to me, and I kept the rig in our driveway for a year until a space opened at this lot. (I investigated 6 or 7, but was not happy with the fencing, access, or other provisions. I suspect I would not have rented from GWM, as RV's are an attractive target; most have VCR's, TVs, microwaves, and other snatchables inside, and the bad guys know it. My lot has a high wall, chain link fence with an angled barbed wire topper, automatic gate with individualized PIN, and is well lit. The rig is also not visible from any street; in fact you can't tell it's there until you're inside the perimeter. [GWM's interesting point about "inside jobs" noted.])

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107693 of 756651
Subject: Re: Self Storage as an Investment Date: 5/18/2003 12:46 PM
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Goofyhoofy writes,

Finally, I know a couple of people who rent "climate controlled" for their RV's; in that way they don't have to "winterize" and put the RV in deep storage for the winter, blow all water out of all the pipes, antifreeze the pipes and drains, etc, and the rig is ready to run at a moment's notice. We don't bother, mostly because we pay $40 a month and those guys pay over $200 for the CC privilege. (There's also a sense of greater security, since ours sits outdoors and theirs is inside. We had a roof leak over the winter, which would not have been such an issue if we were indoors, as if there's a leak when you're in the rig you catch it before a lot of damage is done; I go once a month in winter to run the engine, roll the tires and charge the batteries, so a fair amount of damage could have happened.)

<snip>

Security was a paramount concern to me, and I kept the rig in our driveway for a year until a space opened at this lot. (I investigated 6 or 7, but was not happy with the fencing, access, or other provisions. I suspect I would not have rented from GWM, as RV's are an attractive target; most have VCR's, TVs, microwaves, and other snatchables inside, and the bad guys know it. My lot has a high wall, chain link fence with an angled barbed wire topper, automatic gate with individualized PIN, and is well lit. The rig is also not visible from any street; in fact you can't tell it's there until you're inside the perimeter. [GWM's interesting point about "inside jobs" noted.])


Jeez, owning an RV sounds like even more of a hassle than owning a home. <grin>

intercst

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Author: golfwaymore Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107782 of 756651
Subject: Re: Self Storage as an Investment Date: 5/18/2003 7:05 PM
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What is the benefit of climate controlled? I mean, what do people really store that needs to be climate controlled? I live in Michigan, would cold weather be more a problem than warm weather in Georgia? In truth, here we probably get weather as hot as down there and also get the cold too.

People most often desire climate controlled storage to house expensive, or "all wood" furniture that has the potential to warp in a hot, humid, warehouse type space.

How much is a 6x10 at your place? I've noticed when I go into u-haul places they have self storage, and it is WAY expensive.

6 X 10 spaces, at my place are $45 per month.

At the othe end of the spectrum are 12 X 30's, which are $110 per month.

Golfwaymore



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Author: Spiffy99 Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107783 of 756651
Subject: Re: Self Storage as an Investment Date: 5/18/2003 7:09 PM
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6 X 10 spaces, at my place are $45 per month

One thing I would be worried about as a potential renter, from the description you provided, would be how secure my stuff would be. That is, I'm thinking that metal siding would be pretty easy to pull away and gain access to the stuff inside...??? Maybe that's why your competitors built with concrete blocks?

Spiffy

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Author: golfwaymore Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107784 of 756651
Subject: Re: Self Storage as an Investment Date: 5/18/2003 7:13 PM
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Q.: Do you have the address or phone number to the Co.
you used & mentioned in your post; that provided the
"Metal Manufacture Kit" to build your storage business;
so i'll have it when i need it?


I'm sorry for the late response.

I have "The Mother of all Reply Later Folders" and I've been flooded with emails as well. Perhaps I should have written a book? <grin>

Anyway, to answer your question, the company is:

United Structures of America, Inc.
PO BOX 41027
Houston Texas 77241-1027
Phone: (281) 442-8247

http://www.usabldg.com/

Good Luck,
Golfwaymore

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Author: golfwaymore Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107796 of 756651
Subject: Re: Self Storage as an Investment Date: 5/18/2003 7:51 PM
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One thing I would be worried about as a potential renter, from the description you provided, would be how secure my stuff would be. That is, I'm thinking that metal siding would be pretty easy to pull away and gain access to the stuff inside...??? Maybe that's why your competitors built with concrete blocks?

You would think so, but not really.

Give me 20lb sledge and I can be through a fortified block in about 30 seconds. It would take longer than that to poke or cut metal with tin snips.

My grandad used to say that locks only keep out the honest thieves, and it's my opinion that this is the case here.

I just dont see justified increase in material costs for so little benefit.

Golfwaymore


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Author: tutone Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107827 of 756651
Subject: Re: Self Storage as an Investment Date: 5/19/2003 12:13 AM
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Jeez, owning an RV sounds like even more of a hassle than owning a home. <grin>

intercst


My parents would agree with you. They retired a couple of years ago, and dumped a bunch of money into a new RV. After making a 2 month trip, and dealing with all of the headaches of owning the thing, they couldn't wait to get rid of it.

Tutone

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107873 of 756651
Subject: Re: Self Storage as an Investment Date: 5/19/2003 11:02 AM
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Small business types have a reputation for thinking about everything in terms of taxes and the risk of being sued.

Another issue on taxes occurs to me --- sales taxes. Do your tenants pay sales taxes on the rents they pay? Any other significant state or local taxes or fees? Did you have to get a license to operate as a business, or can you function simply as a landlord without business licenses?




Seattle Pioneer

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Author: nmckay Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107910 of 756651
Subject: Re: Self Storage as an Investment Date: 5/19/2003 2:55 PM
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GWM, you didn't miss anything about my solar farm example. I knew it wouldn't work for you because you don't intend to keep it long enough to get your payback. 32KW/day is quite a bit of light. I recall your customers apreciate it. And you've got pretty cheap power. The only thing I'd suggest is looking for more efficient lamps when your present ones burn out. It may be worth a few bucks.

My example was for those intending to start from the ground up. First off you'd have to balance the fixture type and output with the energy requirements to see what's possible. There are some pretty good fixtures out there. Additionally, you could use motion sensors and timers to control the lighting in unused areas. It may not be worth it to burn the lights all night all over the facility on the off chance that someone will show up to get into their space. The idea is to get the power consumption down to the level where PVs start to make sense. There's probably an optimal size for the facility based on this analysis as well. A lot depends on where your live. In the Peoples Republic of California, you could be printing money. SUS or PSA could probably run with this concept and become the next ENRON (or maybe not).

Again, as a retrofit, it doesn't make a lot of sense. The other attraction of doing this up front is that you can roll the cost into your construction loan instead of paying for it in one lump as a later upgrade.

Seatlepioneer seems to want to lump everyone who speaks of energy eficiency into one politically charged pile. I chuckle to think of myself with that group. I'd stand out like a narc at a Phish concert. Nope, I think of it more like Living Below Your Energy Means. I bet SP still insulates the hot water line when he does his HVAC repairs. Changes the filters regularly, too. I design with the same mindset. I just have some cooler toys like radiant floors and point of use hot water heaters at my disposal. When it make sense to use them, I do. But I won't force a solution on the wrong problem. That's why I just can't drink the green cool-aid.

My thing is practicality and gaming the system. I enjoy taking advantage of the spread between Mother Nature and human stupidity. A house in Ohio shouldn't look like a house in Florida, but they do.

nmckay
in confusion, there's money

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Author: golfwaymore Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107930 of 756651
Subject: Re: Self Storage as an Investment Date: 5/19/2003 5:14 PM
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Small business types have a reputation for thinking about everything in terms of taxes and the risk of being sued.

Another issue on taxes occurs to me --- sales taxes. Do your tenants pay sales taxes on the rents they pay? Any other significant state or local taxes or fees? Did you have to get a license to operate as a business, or can you function simply as a landlord without business licenses?


No sales tax on services in Georgia, including rents of any kind.

No local taxes here, no taxation other than ordianary income.

A business license in my county is not required if operating outside of the city limits of the county seat.

Golfwaymore


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Author: desertdaveataol Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107979 of 756651
Subject: Re: Self Storage as an Investment Date: 5/19/2003 9:19 PM
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Golfwaymore,

I liked your self storage post so much I forwarded it on to my brother up in Washington State.  He wrote back:

<< Sounds good, but the area around here is saturated with self-storage places (phone book survey, six pages of SS rentals). Almost all had some kind of offer to pick their place instead of someone else's; that tells me the competition is fierce.   Unless I could just buy one, I wouldn't want to build a new one; too expensive. >>

We just got our new phone books today, so I checked the Yellow Pages for our area.  Fourteen (14!) full pages of ads.  Many of them full page ads.  Most of the rest were half and three quarter page ads.  And yes, there are lots of incentives to move in.

Two things I did notice though. 
Several of these places appear from the pictures to be housed in what had once been large retail stores or strip shopping centers.  Not a bad idea if stores are closing left and right in your area.  Make the owner a low ball offer and divvy the place up into storage spots.

Also, one guy has shipping containers, you know the big metal kind you see in the TV news being unloaded from ships onto the docks by huge cranes and behind Wal-mart stores.  Says he'll deliver to your site.  Now if you could just get your hands on some used containers at a good price and a truck to deliver them with you could start up a business without buying much real estate.

DesertDave

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107986 of 756651
Subject: Re: Self Storage as an Investment Date: 5/19/2003 9:39 PM
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desertdaveataol writes,

Two things I did notice though.
Several of these places appear from the pictures to be housed in what had once been large retail stores or strip shopping centers. Not a bad idea if stores are closing left and right in your area. Make the owner a low ball offer and divvy the place up into storage spots.


That's nothing!

When I worked in New Orleans in the mid-1990's, the office building glut was so bad that they converted the 10-story building across the street to self storage -- Italian marble floors, bronze fixtures, and all.

intercst

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Author: golfwaymore Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 107989 of 756651
Subject: Re: Self Storage as an Investment Date: 5/19/2003 9:53 PM
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Dave comments,

Sounds good, but the area around here is saturated with self-storage places (phone book survey, six pages of SS rentals). Almost all had some kind of offer to pick their place instead of someone else's; that tells me the competition is fierce. Unless I could just buy one, I wouldn't want to build a new one; too expensive. >>

We just got our new phone books today, so I checked the Yellow Pages for our area. Fourteen (14!) full pages of ads. Many of them full page ads. Most of the rest were half and three quarter page ads. And yes, there are lots of incentives to move in.


Thanks for your comments Dave.

I have no idea if 6 pages or 14 pages of Yellow Page ads is alot for your area, not knowing the population and other demographics.

But as I mentioned in my post, first glance here [such as in TYP] would suggest the same as it did to you and your brother.

Further investigation, however, showed that true enough: There are *houses* and then there are *dog houses*, and most of the units in my area are/were *dog houses*.

Check the details of your area, the niche may or may not be filled.

Golfwaymore



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Author: FoolMeOnce Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 108113 of 756651
Subject: Re: Self Storage as an Investment Date: 5/20/2003 12:22 PM
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Check the details of your area, the niche may or may not be filled.

The market for self-storage apparently is becoming saturated in many areas. GWM has kept his costs low and seems to be in a good position to weather competition. He has found a niche that works in his area. That's what successful real estate investing is all about. But tread carefully. There are few barriers to entry and overbuilding can occur. Check out this message board. There are several posts about some of the problems individual operators are having; also a lot of inquiries from people looking to get started.

http://www.selfstorageguide.com/disc1_toc.htm#0000036c

A few excerpts:

"I also am feeling pressure to do some fairly expensive services I would prefer not to do. Primarily free move ins with our own truck. Now 2 of our major competitors are pushing that service in a big way and a third has the same with a little wrinkle on it. We are open seven days a week and answer the phone 24/7, both of which are in response to competitive pressures, and both of which cost me money. Just learned that a convenience store down the block from one of my facilities has built units out back. My builder, who had never done a self storage facility until he got low bid on my first one, is now doing several new ones in the area, and my banker was telling me he has several new ones on his books. Looks like the bloom is off the rose."

"Timely message. I had just received a request for an interview with a lady writing a book on how to get into the self storage business. I declined and wrote the following reasons.... I think they accurately describe the state of the industry at this point.... "Dear M: If you don't mind, I am going to decline this very nice invitation. I am flattered to be considered, but I am in this very competitive, quite overbuilt business and cannot really afford to assist more folks in building additional competition for me here in my backyard. And, it would be silly of me to think that your book, published there, would not make it here. Lafayette, Louisiana, has over a million square feet of self storage. This is up from 480,000 sqft about six years ago. This building "boom" was repeated all over the United States. Here, as in most communities, there are facilities that have been sitting with less than 50% occupancy for several years. The owners will fib to you about their occupancies, because they don't want to look bad, but they are having problems, nonetheless, and they are everywhere. I can point out four such facilities here without looking hard. All are relatively new. One of the owners contacted me in early January trying to sell his facility and told me that he had 75% occupancy. A quick look at his books revealed an occupancy of about 45% on a financial basis.... he was renting units at ridiculously low rates just to get some money coming in. He is a real nice guy with some very grave health problems, and he is in a bad spot. If I don't miss my guess, he was enticed into the business by the same "hop in, the water's fine" mentality that is promoted nationwide by folks who don't really know, or have something to gain by encouraging development. Construction companies and metal building companies are, along with others, trying to get folks to build even more, and that is understandable, since that's what they do. But, at this point in the development of the industry, there is little room left for more construction, and I don't want to assist in any effort that may ultimately encourage folks to build new facilities. Again, though, thanks for the flattering invitation."

"Just about every one wants to jump into the self storage business. They all think it is low over head with zero maintenance and easy money. Well guys who are thinking for their first time, you should proceed with caution. The market in the Mississippi and Louisiana area seems to be getting quite saturated. We have been in business for eight years and it seems to be getting quite flat. The mom and pop operations scattered on every parcel of land possible is starting to catch up with the supply and demand. So you better do your homework and not think of pie in the sky...but on the other hand, it is your money. Just something to think about...."

"It used to be that when a new site was put in the developer tried to do so in a "new" area where the population was not being served. This usually resulted in properties being spread out geographically from each other. Now, I am seeing unexperienced, and determined newbies locating sites near other "successful" sites under the "they are doing good so will I" theory. Unfortunately, of them as well as the existing properties, this is not so. There is still ageographic element ot selfs storage that is not present in all other "retail" businesses. An example, you might drive across town to eat at a great restaurant, but are unlikley to dos so to rent a self storage. Accordingly, most customers are drawn from a geographic area nearby, and adding sites only "splits the pie" more. New developers would do themselves a favor if they "spread out" and pioneered some new areas rather than "deflating everyones' tires" (including their own)."

"I'm not ready to hit the panic button yet, but right now there are four storage facilities within a one mile area where I'm at, so I'm more concerned than ever before. Just three miles up the road, there is yet two more facilities, with one being built just a few months ago. The storage containers are becoming more popular than ever too. One of the self-storage facilities in my area is down to about 60% occupancy rate, and the owner no longer stays at the facility any more. It wasn't a very big one, and it was one of the many self-storage facilities that were a half-hearted attempt to get into the business. My guess is that despite the overbuilding, it is going to continue. As more and more people continue to pull what money they have left out of the stock market, we are going to find more people wanting to put their money into some kind of investment besides drawing 2-4% interest from the bank on CD's. When things do eventually get completely saturated, and some of the bigger facilities are not able to meet their payments, this is something that actually isn't going to help the near-by competition. It will hurt it because the new owner who gets it on a foreclosure, or bankruptcy or whatever, will get that facility for a much lower price than what the previous owner had in it. When this happens, his prices will also be able to go substantially lower than anyone else's. If the new owner has any managing and people skills whatsoever, along with his new lower prices, there isn't going to be a self-storage facility anywhere near him that will be able to compete. Until the next one folds."

"I've been able to keep my small facility full, but it has become a bit more stagnant in my area due to all of the over building going on. Just a few years ago, it was still hard to find space in my North TX area. That is no longer the case now. People are more savy, and are doing price shopping now too. And yes, it seems nearly every customer I get also wants to get into this business. Many are still under the delusion, that if they have a piece of land, that all they have to do next is build and they will still come. I've lowered my prices to stay competitive, and noticed others doing the same, which is another sign that the boom has long gone in my area. "

"How many of you are experiencing overbuilding? Here in Lafayette, LA, the amount of storage has almost tripled in the last five years (from about 480,000 square feet to about 1,250,000sqft), and I now get near-constant calls and visits from folks interested in getting into the business. Certain areas of town have had low occupancies for a long while, and new locations are getting very, very tough to find (and a bit more risky). Ya'll experiencing any of this in your areas?"

Regards,
FMO




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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 108127 of 756651
Subject: Re: Self Storage as an Investment Date: 5/20/2003 1:10 PM
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<<Check the details of your area, the niche may or may not be filled.

The market for self-storage apparently is becoming saturated in many areas. GWM has kept his costs low and seems to be in a good position to weather competition. He has found a niche that works in his area. That's what successful real estate investing is all about. But tread carefully. There are few barriers to entry and overbuilding can occur. Check out this message board. There are several posts about some of the problems individual operators are having; also a lot of inquiries from people looking to get started.

http://www.selfstorageguide.com/disc1_toc.htm#0000036c
>>


Good post, FMO!


It's interesting to note your scepticism about real estate investing....


I'm certainly glad to hear about Golfwaymore's success in his storage business, and he obviously analyzed the business and his competition with care. He's also noted that he understands that new competition could change things, but that his current very high profits make this investment worthwhile even if the situation might change in the future.

That is certainly a reasonable business decision, in my view.


But your post illustrates the general risks of real estate investing, which involve building very durable structures in what can be a rapidly changing market. The classic syndrome is a spike in demand that greatly increases rents, which in turn sparks new construction and a resulting long term glut of supply and low rents.

It wouldn't surprise me to hear that Golfwaymore skims off those premium profits for a few years, and when competetors obviously begin building at a rate which would weaken rents, hear that Golfwaymore has sold off his properties while prices were still high.


This subject has been an interesting discussion of how business decisions are made.



Seattle Pioneer

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Author: FoolMeOnce Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 108141 of 756651
Subject: Re: Self Storage as an Investment Date: 5/20/2003 1:37 PM
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SeattlePioneer writes:

It's interesting to note your scepticism about real estate investing....

I wouldn't say that I am skeptical of the field of real estate investing. However, I may indeed be skeptical of a particular investment at a particular place and time. This is true with residential rentals and other forms of real estate as well. I mean to take nothing away from GWM's post. It is excellent and I enjoyed reading it.

Regards,
FMO







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