❓ Cashflowing With Self-Storage - Your April 2022 Playbook

The Simple Steps to Store Cash… One Square Foot at a Time

Welcome to your April 2022 playbook and the 15th Playbook in the Cashflow vault!

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People love things. Perhaps the only thing they love more is money—so that they can buy new things!

The consequences of this lust for materialism is that it has created a 50 billion-plus dollar industry because every civilization has hoarded in some way, shape or form. Ancient Egyptians were buried with their prized possessions and now we Americans collect everything imaginable from cars to sports memorabilia to digital tokens.

The problem? Nobody has enough space to store all this crap.

Summary

Enter, the Self-Storage Solution

Today, there are over 1.6 billion square feet of self-storage units in the United States, which is the equivalent of 26,000 football stadiums! The combination of skyrocketing housing costs and Baby Boomers and Gen Xers advancing to different stages of life has created an increase demand for self-storage.

So much so that one in three Americans now rent at least one unit. The 50,000 self-storage units in the U.S. is greater than the amount of Subways, Pizza Huts, Taco Bells and KFCs combined. The industry is predicted to grow over 16 billion dollars by 2026.​

This is due to a few trends such as the increasing rates of urbanization; improved economic outlook across different countries and rising demand of multiple generations to store their material possessions. About 37 percent of people who rent do so due to relocation and another 22 percent rent due to having mature families with more space needs.

The profit margins across the industry— combined with the appreciation of the real estate— are high. John Egan estimated that profit margins were about 11 percent in his informational guide on Storable.​

This Trends article showcases a 2019 case study of Public Storage who had high 54 percent margins for their Net Income and how their YOY revenue dropped less than one percent during Covid-19.

The same article stated that the industry failure rate is less than 10 percent. We wrote in one of our recent newsletters of why this is a market worth paying attention to.

Needs Across Generations & Demographics​

• Baby Boomers (ages 56-71) are retiring daily and are downsizing. They need places to store their stuff.
• Gen Xers (ages 35-55) have growing and complex family lives and have increased needs for storage.
• Millennials (ages 19-34) either do not have enough room in smaller studio apartments or are returning home due to the Covid pandemic and they are needing extra space to store their possessions
• Storing clothing is the third most popular reason for renting a storage unit and 65 percent of people that store clothes are women
• Some people also use self-storage to store items for their business supplies such as vending machines or other raw materials

Growing

• Over 50 million square footage of self-storage is projected to be delivered this year
• There are over 600,000 monthly internet searches for self-storage
• ​An average 10x10 sq ft unit costs $128/month to rent, which is up 5.8 percent YOY
• Increased consumerism and the emotional need to not throw anything out

Ripe for Consolidation

There were 1.479 million storage businesses in the United States as of 2020. That means there are too many smaller players that can be bought by larger and more efficient large players. This is a perfect opportunity to buy a small self-storage business, add immense value and exit for a significant ROI.

The more smaller storage businesses you can add to your portfolio, the more attractive it becomes to a larger player. And that can mean a bigger exit!

Outdated Operations

Many self-storage businesses still use fax machines or outdated technology; have no automated backend processes; and no online footprint. Heck, you could even add immediate value by painting the storage facility doors and updating the exterior!

Therefore, the opportunity is there to take advantage of a growing industry that is still unconsolidated with nearly every generation of American having a need for more space. So what is the best way to break into this growing industry by buying an operational business and improving its cashflow?

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Interview

Enter Nick Huber.

Nick is the owner of @SweatyStartup and has built a self-storage empire. It began when he founded Storage Squad while running track at Cornell. He and his business partner extended Storage Squad’s reach to 25 college towns and recently sold the company for seven figures!

Since then, he has focused on private equity and self-storage. Nick began as the only employee managing seven properties with an annual Net Operating Income (NOI) of $452K in 2020. He has since grown his business to have 34 employees managing over 42 properties and a projected NOI of $6 Million.

He’s a busy dude, so we didn’t get 1:1 time with him, BUT he directed us to his most informative Youtube videos on the TLDR of Self Storage investing.

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Playbook

Now to the step-by-step guide on how to find, vet and execute on adding a self-storage center acquisition to your portfolio.

Step 1 – Know What You’re Looking For, and Where to Find It

Self-Storage is not for the faint of heart and the income is not truly passive. Be sure to understand that you will need to do some hands-on labor (hence Nick’s name Sweaty) to ensure that you add enough value to the business to get your desired cash-on-cash return and cap rate.

There are three separate classes of self-storage properties and all will have different features (such as size, climate-control and property security). All types may be listed on the following sites:

So, where do you find them?

1. Third-party sites such as BizBuySell; Loopnet.com; costar.com; selfstorages.com; selfstoragebrokersofamerica.com
2. Through developing relationships with brokers or commercial realtors
3. Door Knock; cold call or email/letter write to owners in your area (especially ones you go to if they’re privately owned).

Before you assume that this is not possible due to not having millions of dollars in capital/funding or the name recognition of Nick, check out the Sultan of Storage on Twitter. We have listed the Twitter info of a few gurus here.

The Sultan of Storage wrote a thread on how he acquired four ‘crappy’ self-storage properties in just 14 months that began with a letter writing campaign.

He tweeted a picture of his letter. Said he ran out of ink, but persisted!

Nick would be proud. He also made a Twitter thread of advice on how to buy a self-storage facility (something we also shared in our newsletter). This is his example of how he may open up a cold call:

As always, location is imperative in finding and running a successful business. Nick recommends that you look for a self-storage facility that is more rural than urban as it will be cheaper to acquire, away from major players and likely to have more opportunity for you to add value to maximize your investment.

Prioritize Location

1. Step on-site and get a feel for the facility. Is it visible from the road and easy to get to?
2. What other businesses, schools, and neighborhoods are nearby. Are there any in development? Ninety percent of clientele (middle to upper-middle income) will live within a 3-5 mile radius of the self-storage they choose to rent. It’s a numbers game; is yours close to many people?
3. Check online for recent reviews of the business and the surrounding area. What other competitors are nearby? Call them; is it easy to rent a unit? If not then, you could probably increase the rents on your self-storage.

You will not be able to change your location, and you want to be as close to as many potential customers as possible who will likely need more space over time for one reason or another.

Step 2: Understand your Self-Storage Class & Unit Mix

There are three main types of self-storage facilities:

• Class A: Year 2000 or newer builds; located in ideal neighborhoods
• Class B: Build in ‘80s-90s; mom & pop owners with stable finances
• Class C: Very risky investments due to being much older builds in poor locations that are prone to maintenance issues

There are two main types of units and their average monthly street rates for February 2022:

The industry standard and most popular unit size is 10x10 square feet and the average rental income per square foot is $1.35. The more rural, old-fashioned and lower class grade a self-storage center has, means there is more opportunity to add value in a turnaround.

Two reminders are that a) we want to ensure that the business is currently profitable in our due diligence prior to our purchase and that b) we follow Nick’s Golden Rule and ensure that we do not run out of cash.

**To view the rest of the playbook and access your resources, visit the vault!**

Bonus

If you like TLDRs, here’s Nick’s pinned Tweet on self storage acquisitions. Biggest takeaways here especially in today’s market…pay attention to real estate values as well as rate percentages. Lock in interest rates for 5+ years if possible.

And if you’re a buy and flip type person, this asset isn’t for you.

AMA

​AJ Osbourne, founder of self-storage REIF Cedar Creek Wealth and owner of 2mil + sq ft of self-storage, will be joining us on our Cashflow Weekly Call on May 17th 2022 at 3pm CST! Mark your calendars and bring your questions!

Stack cash and store some stuff,

Codie

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