Let's take self-storage, add shorter-term leases and a level-up in clientele, then subtract expenses. What do you get? Small bay warehouses aka cash cows.
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Costs can range anywhere from $25k or more per unit, with lots of variabilities depending on where it’s located, the size, and the number of units in your facility.
Our friend, Bill, got involved in these last year, especially into flex spaces a.k.a. a warehouse that’s used for BOTH warehouse and office space. Let’s do the math on one of his deals:
Small Bay Warehouse Syracuse, New York:
paid $35 per square foot—a total steal
each unit comes in at about 5,000 square feet
property’s purchase price was around $175k
Rent is around ~$2 per square foot, (or $10k a month)
Outside of other variable costs, he’s making his money back in about a year and a half
What’s growth like?
According to The Case for Small Bay Warehouse, you can expect an SBW with 120k square feet or less to increase rent prices from ~5-7% in one year, and up to 20% over five years.
With where we’re heading with inflation, I’ll take it.
SBWs can either be a place to store your items, or to actually run your business from like a traditional office space or brick and mortar, but on a smaller scale.
Here’s why we’re sniffing around this asset class:
They generally operate with shorter-term leases: meaning more leverage to adjust rent based on the actual reality of the current market, versus getting locked into 3 to 5-year contracts you can’t adjust. (This could be more risk but with inflation increasing it might be the opposite).
Low expenses, high cash business model: other than rent/mortgage, security, and utilities (which FYI can all be price-adjusted in your tenant’s rent – see #1), most of your overhead costs can be absorbed by your tenants, making it ideal for increasing your cash flow.
Your customers are business owners, not suburban families storing their sh*t: say hello to an elevated ideal client avatar. When you invest in an SBW, your customer sees their space as a business expense and not a place to store their winter coats. They’ll be more likely to invest in the space, meaning more leverage in your rental pricing. You can also require larger down payments etc.
Canopy in East Austin offers a collection of art studios, coworking spaces, shops, galleries, and cafés in the small bay warehouses format. But other than the garage door, you’d never know it was just a basic SBW made of concrete. I’m 50/50 on this exact model, I hate retail spaces so I’d probably charge a big down payment in case they go out of business. BECAUSE THEY DO ALL THE TIME. Image source: Canopy Austin
I’ll also give you the cheat code on SBWs—for free.
There are usually three main types of renters who are looking for industrial space like this:
For service providers (like auto detailers, handymen, lawn care services, or cleaning services), this might look like somewhere to store tools, supplies, and equipment or run the business.
For startups, this might look like setting up a small office space for 5 to 10 people without the expensive costs of a co-working space or a formal office.
For e-commerce brands, this might look like having a place to store inventory or run their logistics department, for more flexibility and faster shipping times. (This segment likely has the greatest current need with the highest price increase ability).
Another reason I love this business?
Rent over time and less market volatility than the traditional self-storage concept.
It’s all the benefits of a proper brick-and-mortar location without the hefty mortgage price or rent. A HUGE perk for your customer.
Also…small businesses who can benefit from an SBW typically don’t need hundreds of thousands of feet of office space—just a couple thousand (or less) will do.
If I were going to get into SBWs, here’s how I’d do it:
Find a location that’s close-ish to a metro area and easy access from an airport (~30 mins or less). If you happen to get an e-commerce customer who’s looking for expediting their logistics and delivery timetables, this will be a major selling point.
Secure an entry offer for any new tenants: a 12-month trial at a lower rate, and then increase their rent slowly over time. As you sign new tenants, you should also generally increase rent with each new contract that gets signed.
Offer some form of loyalty or referral program. Chances are your customers will know somebody who knows somebody who knows somebody that could use your type of facility. Why not let them do the sourcing leg work for you? P.S. You probably won’t need to do this if you’ve only got a few bays available, but if you have a lot of spaces—referral program or bust, baby.
Get clear on your ideal customer: will this be an alternative location for home services companies? Will you go all in on supporting e-commerce brands who need top-notch logistics support?
TLDR
Still technically an empty room, but because a small business is operating inside of it, the value of your space increases.
Should we take you inside and film a behind-the-scenes of a small bay warehouse? Figure out how much these things really make in Austin, Texas? Hit reply and let us know—we’ll make it happen.
CONTRARIAN EXTRAS
The Not So Boring Section:
Optimal Outsourcing – You should always try to outsource tedious tasks for your biz, so you can focus on what you do best.
Done Deel – International payroll and compliance can be a real pain, luckily there is an online tool to make it easy!
Stop Grifting Me:
We’re starting a new segment since inflation is OUT OF FING CONTROL. It’s called… Stop Grifting Me. In it I’m going to highlight a product each week you should definitely buy for cheaper somewhere else. No affiliation just a general WTF to the world from me on your behalf.
TODAY’S GRIFT IS BROUGHT TO YOU BY… A company I actually love and just spent too much $ at but hate this product grift: Goop.
The difference between a marketing machine…
And not… is apparently $52 for the same exact stone. Careful where you shop.
So if you are in the market for toned cheekbones (which is apparently what this thing does)… just go here and buy it for $7.95. And ya know what I’ll include an affiliate link and Venmo someone with the best response to this email whatever we make on this if anything. Because I am feeling SPICY AF.
Rich Dad Poor Dad Lied To You
Watch to find out how Robert Kiyosaki was misleading, and why you should use a different investor matrix if you want to get into the millions.
This week’s YouTube is brought to you by our friends over at Bench, where you can save up to $1,000 on balanced books.
Disclaimer – This is the “Be an adult” section. Everything mentioned above isn’t advice, just a recount of what I did. That said: This article is presented for informational purposes only. The opinions stated here are not intended to recommend any investment or provide tax advice. Neither are they an offer to sell or the solicitation of an offer to purchase an interest in any current or future investment vehicle managed or sponsored by Codie Ventures, LLC or its affiliates. All material presented in this newsletter is not to be regarded as investment advice, but for general informational purposes only. Day trading and investing do involve risk, so caution must always be utilized. We cannot guarantee profits or freedom from loss. You assume the entire cost and risk. You are solely responsible for making your own investment decisions. We recommend consulting with a registered investment advisor, broker-dealer, and/or financial advisor. If you choose to invest with or without seeking advice from such an advisor or entity, then any consequences resulting from your investments are your sole responsibility. By reading/sharing this newsletter or consuming our content on our other channels, you are indicating your consent and agreement to our disclaimer.
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