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URL:  https://boards.fool.com/seattle-pioneer-writes-my-most-serious-criticism-19049554.aspx

Subject:  Re: Self Storage as an Investment Date:  5/15/2003  10:37 AM
Author:  golfwaymore Number:  107223 of 888207

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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