I've been researching self-storage facility investing for the last 6-7 months and I love the asset class - especially the "lower tier" properties that may be outside of the large city centers, less amenities and resulting simpler operations - and lower price for customers.
The risk / return profile is good and in my geography, the market remains highly fragmented. Most of these are operated by old, (relatively) wealthy people who don't take credit cards, have raised rents minimally and are treating their asset like a passive asset. I feel strongly that there is a lot of upside available for someone who operates a portfolio of these as a business.
I'd like to start rolling up properties in my market. I have capital to do 1, maybe 2 deals on my own but that's it. For this to work, I'll have to source outside investors - and run it like a true business, which means leaving my day job.
Does anyone have insight into the type of fees investors would be willing to shell out for a project like this? These would be small deals ($500k - $2.0M per property, ~70% loan-to-value) and in a perfect world, the first few go well, we're able to refinance and take cash off the table, and use that capital to fund the next deal (without needing outside investors).
What I am struggling with is how to replace a portion of my income to cover living expenses for the first 3-5 years as this gets off the ground. I live relatively frugally but, given the small scale of this project, I don't think fees would cover it.
Any thoughts on either (1) Fees (acquisition / asset management / refinance / disposition / etc) and (2) Income replacement strategies more broadly?
Thanks guys!
1% acq fee, could probably pull 0.5% - 1.0% of EGI for AM, no dispo that’s what your promote is unless you’re raising from mom and pop who don’t know better then maybe you could slip it in there
Check syndicators in this space. Kingdom self storage, Spartan, Cedar Creek Wealth, etc. see what fees they charge. Keep doing research and you’ll find the market. These are going to be the fees you can eventually charge.
what you’ll find in this space and the others similar (in terms of cash flow the deals throw off, such as mobile home parks) is that many syndicators charge their pref on a cash on cash return hurdle or percent of capital returned. Once you hit the hurdle, you flip to a 50/50 split. When you do the math, this is the only way to generate enough fees to live on while running these assets.
Anyway, you’ll see these syndicators charge 3-5% acquisition fees, 1% asset management fees, PM fees, refi fees, disposition fees, and than a 50/50 split on the promote. Many of them also structure the deals to be long term holds, which is also why the fees are set up how they are. So that the syndicator can pay their people through a 10 year deal.
What you’ll quickly see is that while you may like the risk return profile, people don’t go after these assets as much (while they are extremely popular) because they are generally small and hard to fee. So everyone tries to scale to the $5-$10MM storage deal because the bigger deal is the same amount of work, but you can make more nominal dollars off of it. It’s the same reason people say why do a $10MM storage deal when I can do a $40MM apartment deal (and there are more of these apartment deals), and so the fees are larger because the nominal dollars of the deals are larger.
Thanks for the detailed response - I'll have a look at the syndicators you mentioned, appreciate the info.
I'm not in real estate, but it seems like for the first few years, a storage unit business definitely doesn't have full time hours. It's way less hassle than rental properties (random stored shit doesn't break the toilet, go on a drunken rampage, complain about noise, flood the sink) and low turnover.
Actually it’s the opposite. Self storage is an operating business on top of real estate. Tenants move in and out daily and leases are month to month. While there has been a push to automation, some stores just won’t be automated as it’s not in the operators model.
If I was an economist/strategist. I would prevent turnover by making it in the most unaccessible place possible, offer free delivery there, but they have to haul their shit out themselves if they want to stop leasing. This way they either stay because it's a hassle to switch/move, or they refuse to pay and you keep their shit.
While I know you’re totally joking around and trolling. I’ll say one thing - usually operators find once they keep someone’s stuff who they need to evict. They than good through an auction process (per each states requirements) and they lose money because it costs more to use the auction service than the amount you make on your tenants stuff.
Didn't they make reality TV out of this?
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