Time to take a look at self-storage deal analysis! A lot of people are having a hard time starting in real estate. They don’t have enough courage to begin. One reason for this is that people don’t have enough knowledge to step toward success. But, if people understand the numbers with real estate deals, they will feel comfortable taking the step. Listen to this episode as Stacy Rossetti dives deep into how they analyze real estate deals in self-storage. Learn how to have the courage to take that giant leap in the industry!
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Self-Storage Deal Analysis
I had arrived in San Dimas, California. That is where I am at. If you are following me, you know that I live in an RV, and we travel full-time. We were in Las Vegas, and I went to the ISS. It is the International Self-Storage Conference. It is an annual conference that happens in Vegas. I was asked to speak, and I’ve got to meet some awesome people. I was there all day on Wednesday.
The networking at this event was good. I got to meet so many people while I was there. A lot of people came up and said hi and introduced themselves to me, which was cool. That was fun. I spoke on a panel. There were a lot of newbies at this conference. The truth of the matter is that when you go to these conferences, it is very high-level.
It is 1 of these things where there were 6 different tracks that you picked out, and there was an investment track, owners track, and management track. There were all these different kinds of sessions. I spoke on one of the very first sessions, and it was under the investment track. It was on analysis paralysis, essentially. It was how to get over analysis paralysis, take action, and get your first deal done. There were a lot of people in this room. We were in some random room all the way in the back of the conference. I was like, “Nobody is going to find us here. I am going to be all by myself in this room.”
Educate Yourself
The truth is there were a lot of people there. People were attracted to this topic. When I think of analysis paralysis, I think of people that are trying to get started in real estate and storage investing. They are trying to educate themselves. They do not know when to take the leap and when to buy their first facility. They are having a hard time. They have this fear factor. There is this fear of doing your first deal. I see it all the time because I coach people regularly. In fact, we have a student in Storage Nerds. He is getting his first facility under contract. It is 322 units. It’s his first and a huge facility.
It is in Texas. He has got a great deal. He is getting it for almost $2 million. He is going to hold onto that thing. When he sells that thing, it is going to double the value. He is going to do well. He has enough money because the down payment is going to be about $500,000. He will be able to put the down payment on that, which is good. That is why he wants a bigger deal because he has this money sitting and needs to utilize it. He also wants to hire a management company to manage the facility.
He wants to be hands-off. He lives in California. It would be a good deal to hold on to. He was also talking himself out of this deal. I could see it. In his mind, he was like, “This is a big deal. Are these good numbers?” After I talked to him, I started thinking about deal analysis and how we can educate ourselves better on how to run deal analysis. The truth is a lot of people do not take that first step because not only is there this fear inside you of like, “This is a big deal, and this is my very first purchase. I am scared.” There is also not enough education on what deal analysis is and what it entails.
Looking At The Numbers
In this episode, I thought that we would go over deal analysis. How do you look at the numbers? How do you understand the numbers so that you feel comfortable enough to take that first step? I see students all the time in that position. It is not just him. The very first deal that I ever did, it was before I lived in an RV. I lived on 10 acres and had a house and a guest house. We also had the long trail and the short trail. The long trail went all the way around the 10 acres, and the short trail went over 3 acres. I would walk it. I would take my dogs for a walk. It was before Lillian.
This was right when Pete and I started getting married. I was scared to get into real estate investing. I would walk this property. I am the type of person that gets to recharge, better energy when I am in forests, mountains, and near nature. I tend to do that. That is why we live in this 10-acre forest. I would walk, take deep breaths, and talk myself into doing these real estate transactions. That was the first deal but it was also many deals.
I have done hundreds of deals. I would talk myself into them. I would be like, “You can do this, Stacy. We have run the numbers. This is a good deal. I know it is crazy but you can do it.” I am trying to talk myself into it. A lot of people get into that position where as soon as they find that deal and think this is going to be a good deal, and then they start freezing. In fact, we had another student that closed on a deal. I remember when he got that deal under contract. In the first 90 days, he got a deal under contract. He started freaking out. I had to help guide him, “This is a good deal.” He tried to hold. He was like, “I need to wholesale this.”
A lot of people do like, “I cannot buy this deal. I am going to wholesale it.” After a couple of months of trying to wholesale it, he got an offer. He got it under contract for $600,000 and an offer for $750,000. I was like, “I told you it was a good deal.” After that, he started getting his wheels turning, and then he was like, “I am going to buy this thing.” It took him a little process to go through. I see it all the time, analysis paralysis. I wanted to talk about deal analysis and try to dig into it. I will help you at least get a better understanding of it and think through it.
I am going to go through what you need to run a deal analysis. I am going to show you the deal analysis spreadsheet that we use. I share it with my students. I do not give it to anybody else but my students. We will go through that as well, too, so you can see the numbers. We will walk through one of the deals. While I was in the ISS, my acquisitions manager got a deal under contract. It is in Florida. I am excited about it. I am going to walk through those numbers and give you an idea of what we are going to do with the deal.
I teach people how to invest in self-storage. We have eleven facilities. We have a fund called the Self-Storage Fund of America. This is where we are raising money to buy facilities like the one I’m going to talk about. I own a company called REI USA. If you want to learn how to invest in real estate, self-storage or any type of real estate, please check out REI USA. That is where it is a low-cost way for you to learn how to invest in real estate.
There are some people here that do not have a lot of money, have some money, and got a lot of money. We are all on a different path. It does not matter which path you are on. I have been in all three of those places. Thank you for being here and giving your time. I am very passionate about teaching people how to invest in real estate. I am very blessed to have learned how to do what I do.
I teach as well and show you all the things that I have done. Before we get started, I wanted to remind you that, as of May 1st, 2022, the doors to Storage Nerds are opening, and they close on May 14th. There is only a two-week period where the doors open, and I take students, and then they close, and that is it. We will not take students again until the end of the year.
If you want to get into the coaching program and you want to get into the mastermind, then please make sure that you get on our waitlist. You will get notified when the doors open. You will get access to my calendar, and then you can meet with me face-to-face. We will talk about the coaching program, what your goals are, and is it the right fit for you. That only happens from May 1st to May 14th.
Finding The Facility For You
My calendar is going to fill up very fast, so make sure that you get on it. Also another thing that we are implementing as of May 1st is turnkey acquisitions for our students. If you are the person that is like, “I want to get into storage. I have got money but I do not have the time to get out there and look for a storage facility.” You can hire my team to get out there and find the facility for you.
You can also wholesale self-storage too.
This is my Money Bots program. I am starting this as of May 1st. I am only going to take a handful of people because I need to work through how I am going to do this. You get to hire my team. You will get an acquisition specialist that will call owners, find facilities for you, manage the deal for you, and then present it to you.
If you are interested in that and make sure you get on the waitlist so that you can talk to me as well about that. The coaching program ranges anywhere from $1,000 to $50,000. Now, it is $1,000 to $20,000. I do not charge a lot but it is an investment. You’ve got to make sure that you do have some money, not only for the coaching program but also to purchase self-storage as well, too.
In commercial real estate, it is not cheap. You can learn how to wholesale self-storage and make some money on your first one. In fact, in the deal that we were talking about, if my student buys it, the person that is selling it is another student who is going to be making anywhere from $100,000 to $200,000 on the deal.
You can also wholesale self-storage as well too but you do need some money. Finally, if you are like, “I want to DIY and Do It Myself.” You can buy the course Super Simple Self-Storage. It is my course. You can go to StacyRossetti.com, and you can purchase that there. Let’s get into the Deal Analyzer. Let me tell you about this deal real fast. What happened is that my acquisitions team went there. They act as my boots on the ground, people. I have an acquisitions team of 5 or 6 people. Their job is to call storage facility owners and talk to the owners. They are going on to Google Maps and then creating lists by searching, “Storage,” that is it.
I give them an area. For instance, I said, “I want to buy something in the Panhandle, Florida. Go ahead and build a list of every storage facility in the Panhandle Florida.” You can buy a list if you want to buy a list but we do not buy lists. We build our own lists. I feel like Google Maps has the most accurate data, most of the time with the phone number and the information. Sometimes you can buy a list, and that list will be a little bit older. That is what we do internally. I have lots of students that buy lists, and then they will either call the list or mail a letter to the list.
We, personally, build our lists through Google Maps, and then we call the owners directly that way. We also do virtual driving for storage. We also find storage facilities that are not on Google Maps. They do not have a website. They are not on Google Business Listing. They do not come up when you say, “Storage near me.” Those are what I call the hidden market.
You want to find those. We find a lot of storage facilities that way as well too, and then we add them to the list. We call them, and we try to find the owner, and we skip trace. I have a lot of videos on that and all kinds of training stuff at StacyRossetti.com, under Free Trainings.
I wanted to get into the deal analysis. It is not about finding stuff. This is about deal analysis. Essentially, one of my acquisitions team members called and talked to the owner. They would be interested in either selling or getting an offer on the facility. That is how the conversation started. They called up and said, “I am here to talk to the owner. I am introducing myself. I would like to know if you are interested in getting an offer on your facility.”
The truth is we make a lot of offers, and we present them that way like, “Would you like to get an offer on your facility? You do not have to sell it to us but at least we will get an idea of what it is valued at in the market nowadays.” It gives you an idea. I also tell all storage facility owners. I talked to a student and who owned a storage facility. He was like, “People are calling me and trying to buy my storage facility all the time.”
I was like, “Have you gotten an offer yet?” He is like, “No, I do not get enough. I tell them that I do not want to sell.” I said, “Why do you not get an offer and see what everybody says?” You will get an offer from all these different people that are calling and get an idea of what it is. It will give you an idea of what they are looking for in the deal analysis.
What one person asks and another person asks would be completely different. That way, I analyze the deal could be totally different than somebody else in the industry. It is good to see what everybody is looking at nowadays. Some people get deep into underwriting. I had one guy who sent me this list of twelve questions.
It was like, “Are you in a flood zone?” I was like, “I do not have time for that. I am a business owner here.” You do not want to waste too much time. It will give you an idea of what everybody is looking for. That is number one. We talked to the owner, put the offer in, and used the Magic Letter. My students get this but anybody could do it.
My students get the letter that we use that is a cash offer, plus three owner financing offers. Typically, when you talk to an owner, they do not say, “I want to finance this thing. Give me an offer. I want to owner finance.” No, they do not. We do not ask them if they want to owner finance.
On the phone, we do not say, “Can we give you an offer? Would you be interested in owner financing?” We never do that. In fact, we get the information from them that we need to run a deal analysis. We send the offer with four different offers in it. We always have a cash offer, plus three other different offers. We have a nice letter. There is a little chart. It shows you what the purchase price is and how much money is the investor going to make if the owner financed it for you. It shows the interest rate in the terms. We call that the Magic Letter inside the Storage Nerds group. If you join, you will get a copy of that and lots of training on that.
We talked to this guy and he said, “I am interested in getting an offer. I have been thinking about selling but I have not done anything about it.” I said, “We will send you over an offer.” We did. We’ve got the information that we needed to fill out the Deal Analyzer, and we sent over an offer. After we sent over the letter, he called back and said that he was interested in owner financing. I want to go through how we’ve got to that process. I will tell you what we agreed to in the end. We do not usually have it in Google Form but this is in Google Forms now. We have it in an Excel Spreadsheet.
Typically, what we say to our students is, “Every single one of your deals that you do should be a completely new spreadsheet because you do not want to be using the same Deal Analyzer over and over again because the numbers and the formulas would get all jumbled.” This Deal Analyzer, we have been working on internally for several years. We have always gotten new updates because we are always updating everything.
The market is just changing so fast.
This is not even the latest version of the Deal Analyzer because we rolled out a new Deal Analyzer. This is the version that we use to run the numbers. Most of the time, the numbers do not change but every once in a while, the formulas and the numbers will change. Let me go through this step-by-step to give you an idea of what is needed for you to run a deal analysis.
You can make a checklist. Inside Storage Nerds, we have everything that you need to ask the owner, which we call the seller call sheet. It is a list of everything that you are going to need or input to run the analysis. On our Deal Analyzer in Storage Nerds, you only input what is in yellow, and then the formulas and everything are all calculated as you go through the deal.
As you can see along the bottom, there are a lot of tabs here that need to be utilized and updated. Everybody is always like, “What is the formula?” On the residential side, it is a quick formula that you can use but in the commercial real estate world, it is a bigger picture. You have to look as is value, potential value, and then your opportunity value, so what you can make as an opportunity.
In commercial real estate investing, you have to look at the whole picture. You cannot have some formula and then try to come up with it. In Las Vegas, we did an in-field training day with some of our students. One of my students has his calculator. He is calculating his number all the time. In my head, I am like, “I cannot do that. I need to run numbers and look at the picture.” I have to look at the whole deal but he does it in his head. I am not that good. I am a visual person and like to look at the whole thing.
On our Deal Analyzer, this gives you a good idea of how to analyze your next potential deal, we are going to have the current inputs, and then you have the potential inputs. Potential is if you take it from 10% vacant to 8% vacant or 20% vacant to 8% vacant. We are calling the full 8%, vacant. You could argue with some people that a lot of the REITs run their numbers at 82% full or 85% full but we run our numbers at 92% full. That is what we do. This is potential.
Potential is when you can get it to full status from mismanaged status. We have the after updates call. After updates are when you are taking these inputs, which is either adding new units, adding square footage, increasing the price per square foot, the rent per square foot or taking it from one vacancy to a higher vacancy.
Also, what we will do is we are going to input these tabs here so that you can see what your current, as is the price is going to be, which is on the valuation tab. As potential rents, your after updates of what your NOI can come out. That is why it is so important to separate it out. When you look at a commercial property, you look at it in three different ways. If it is an income-producing property and it is already full where the current price and the potential price could be the same but typically, they are not the same. We will get into that.
Our property that we have under contract is in a primary market in Florida. I am not going to say where it is. There are great deals still to be had in primary markets. You have to find the right primary market to purchase in. We made the offer at $1.64 million. If we went to a bank and got a loan, this is what we ran our numbers at on an average of a 5% loan for 10 years. It would probably be cheaper than this. You could, if you are going to get it amortized, do 240 months or whatever you want to do. Typically, your term on a loan from a bank is going to be 5, 10, 15, 20, and 25 years. Commercial loans will go up to 25 years. It depends on the lender and what their terms are.
This number is going to determine what your mortgage is going to be. Your mortgage payment is going to be $73,000, depending on how much money you put down and how much interest rate you are going to get, and what the term of your loan is going to get. We do have a loan calculator sheet that we put all of this down. We are running it at 10% down. The balloon after twenty years is what is going to be a loan, and this is what is going to be owed. This is what the interest rate is going to be. There is a way to calculate your loan. The loan is very important because if it is an income-producing property, then you are going to go to a bank and get a loan.
Loans
If this was a mismanaged facility, you are going to go to a private lender and get a loan. The terms of the loan are very important, and it makes or breaks the deal. The loan terms, the numbers from the loan, and your mortgage payment is not calculated in your NOI. We have your annual NOI minus your mortgage. This is what you are going to make. If I were to get a mortgage that looked like this, this is what I would be making on an annual basis. This is what you should be looking at if you are going to get a loan from a bank.
This section is the market cap rate. This is where you put in what the cap rate is going to be for the area that you are purchasing. Cap rates are all over the place. You could get a 4% cap in a primary market. You could get a 5%, 6%, 7% cap. It depends on what it is. On the secondary market, you can get 6%, 7%, 8%, and 9% cap. On a tertiary market, you can get 7%, 8%, 9%, and 10%. Prices are so crazy that people are paying super high prices for deals. I have done a lot of videos on cap rates as well and how to figure out cap rates. I will do another video coming up here. I will do another session for the podcast on cap rates because they are changing. The market is changing so fast.
This is in a primary market in Florida. You could shoot for a 7% cap, if you wanted to, in a primary market but then the value comes down to $1.25 million. I would love to get a 7% cap in a primary market. Typically, you are going to be at a 4% or 5% cap. This area that we are in is a 4% cap. Things will even go for a 4% cap but we talked to the owner directly.
When you talk to the owner directly, you get way better deals. That is why we talked to the owners. I put a 5% cap in, and the current value comes to $1.75 million. I put a 6% cap in, and the truth is, I am playing around with the numbers. The valuation comes out to $1.5 million. It is somewhere between $1.5 million and $1.75 million.
That would be a typical price that you would pay for something in a primary market unless it is ultra-big. This is not a primary market. It is definitely not like Downtown Orlando or Downtown Jacksonville. It is in a smaller city in Florida. The cap rate in this primary market is going to be better than in big sheep cities in Florida. Another thing with deal analysis, now that we know you need the purchase price, your loan terms, your market cap rate, and then you need annual income. There are some facilities that have a lot of different ways to make income. Personally, what I teach my students is that you should be separating your storage units from any other income that you get. Any other income is going to be like another line of income.
If it has parking, then you need to separate that income. We do not look at the price per square foot for parking. We look at lanes. We look at the competition. I like to separate that out. Some people will calculate the price per square foot and calculate the total square foot and try to figure out how it is that way for parking. I typically do not do that. I separate that out. Parking is making this much, and storage units are making this much. If there is an apartment building, it is making this much. If there is a commercial space, it is making this much. We are separating all those income streams.
Our yearly receipts or annual income would be $140,000. It is 93 units. That is the only income that has these 93 units. Its total square footage is 11,802 square feet. You are going to need the number of units. You are going to need total square footage. You are going to need the annual income, the market cap rate, and the purchase price. You see how you can make a good checklist out of what you need to know to run a deal analysis. These are all the questions that you should be asking the owner when you talk to the owner, “What is your yearly income? What is your number of units? What is your total square footage?”
You should really be separating out your storage units from any other income that you get.
You do not want to ask the owner, “What is the cap rate?” They are not going to know the cap rate most of the time. You do not want to ask the owner, “What is the loan interest rate going to be?” They do not know but you need to know that for your deal analysis. It is 90% full. It is always full. When we talked to the owner, he said, “It is always full. I have a couple of owner units. Those are being used by me. That is why I am saving 10%. Everything else is completely full.” Those are the inputs in the current areas.
This is how you run your as-is numbers. Initial clean-out and initial repairs are another way of saying, “What is your CAPEX? How much is it going to cost you to get this thing up and running?” This facility that we’ve got under contract has nothing wrong with it. This is a nice facility. It is indoor units. It is a conversion. This is a brand new building that has indoor units. The whole thing is climate controlled as well too. It is indoor conversion.
We are getting $1.10 per square foot. That is the price per square foot that we are getting. The property taxes are about $6,000. Utilities are $9,000. I told you it is all climate controlled. You should have a high utility bill with climate control. He said it is not that high. It comes out to less than a $1,000 month. He says it is $750, $800 a month. Insurance is $600. Those are the things that you ask the owner.
Also, you are going to be trying to input what you can possibly make on this facility. Can you raise the prices? Can you add on? Can you expand? Can you add more units? This is where the after updates tag tab comes in. This is when you are doing your due diligence and trying to figure out what the competition looks like and how you can raise your rates if you can raise your rates.
In this particular one, there are 93 units. You cannot increase at all. You cannot make any more space because the conversion is already there. It is all built out. It is almost 12,000 square feet done and ready to go. $1.66 is what the competition is charging per square foot for climate control in the area. How did we find that number? We called every storage facility in the area that offers climate control. We asked them what they charge. That was our competition underwriting. It is where you are going to be going to be calling competition and asking them for the prices. There are 5×10 that are going anywhere from $126 to $152. The average per unit is $138. There are 10×10 that are anywhere from $69 to $232. It comes out to $177 per unit. There are 10×20. There are units that are from $117 to $362.
You are coming up with the average per square foot on the units that are apples to apples to your units. It is imperative that you do extensive competition research. You cannot go on to Radius Plus and go off of their numbers. You have to call them and get the information. You have to call and talk to the owner, pretend like you are going to be a tenant, and try to get as much information as you can. We have learned that Radius Plus has not had the most up-to-date information. If they have a website, you cannot go onto the website because what if they have their units based on dynamic pricing? That day, it was that price. Tomorrow, it is another price.
We should be calling and saying, “I am trying to trying to figure out what the prices are. Can you give me an average of what should I be budgeting for 2019 climate control in this market now?” It is talking to the people on the phone and getting those numbers. This is what we do. All of our acquisition specialists all call and talk to all of the competition and get all the information that way. We did apples to apples because this is what we are off they are offering. We took 138 units, 177 units, and 304 units. This is just a formula but we came up with the average per square foot. We added these up and then divided by three. We came out with the number of $1.66 per square foot.
This area is in the Panhandle of Florida. This facility is owned by the same owner. He has had it for a gazillion years. He has not raised the rates for years. He was too afraid to raise them before COVID and then COVID hit, he has not raised the rates because he did not want to be the bad guy. That is how we came across this facility. As you input the numbers, I wanted to go over the expenses. We have property maintenance, staffing, software marketing, and mortgage payment. My husband created these formulas. These are all based on our numbers. He is taking the purchase price to come up with the expense of what the property maintenance is going to be.
Property maintenance includes the boots on the ground person. It includes, if you are going to put a new door, springs, repairs, boots on the ground, it is all things maintaining our property. He lumps it all together. He multiplies the purchase price by 5.015. Staffing is $7,400. He has some formula here that he comes up with. It is $400 a week, times 12 plus 50 times 52.
That is the little formula that he comes up with. Staffing is the phone people. It is the people that answer the phone, do all the paperwork, the auctions, and the behind-the-scenes stuff. Software is the software that we use, the back office software, and then the marketing is any type of marketing that we do to lease up the facility.
The mortgage payment stems from these terms and comes from the loan calculator sheet. That is the input so you can create your own sheet. It does not matter what the owner’s expenses are. It matters what your expenses are going to be. This is where you are going to create your own expenses. You are going to come up with a list of all the questions that you should be asking the owner so that you can find some way to be running a deal analysis on commercial real estate. This is how I do it but there are going to be all kinds of sheets out there.
As is price is valued at $1.5 million. If I pay $1.64 million, I am already negative almost $200,000 into the deal. The NOI comes out to $87,000. The NOI is calculated by the gross potential rent minus all the expenses. This is how it factors if we had a mortgage based on the numbers or what we input into the loan calculator. This would be our net if we had a twenty-year loan at 5% interest with 10% down. Those numbers would change. If I put 20% down, let’s say if I put $350,000, that is $21,000 down, then all the numbers would change. What we pay per month, the total cash investment, and then our net. The cash-on-cash return would be $32,000. That is your NOI and the calculator NOI.
From current to potential to after updates, we basically separated those out. Potential is getting it from a 10% or 20% vacant to 8% vacant. This is your number if it was full. We are making around this much money where money is in our expenses, and the net operating expense is $90,000. If we had that loan that we were taking out, we would be netting $35,000. If we can increase the rate, this is the after updates. This is where the only thing that we can do to this facility is increase the rates to $1.66.
Our gross potential rent is $235,000. Our NOI is $163,000. After the mortgage, we are netting $108,000. That is the difference. That is why it is so important to understand your as-is price, your potential price, and your after updates price. You should be able to run it so that you can see what your cap rate is. We are buying out of the 5% cap.
We are increasing it to a 10% cap, and then, most likely, we will sell it at a 5% cap. As soon as we increase the rates, we will stabilize it, and then we can sell it in the next two years. That is, if you had a bank loan. Before we get into what he was going to do, I wanted to make sure that you knew that inputting the unit mix is also very important. It is very important to get how many sizes that you get, and then what the unit number comes to, and then what the square footage is. They will say, “It is 12,000 square feet,” but once you add it up, it comes down to 11,802 square feet.
You want to be looking at the current rate and putting, “What is he currently charging? Do we need to charge to get it full? What do we charge if we want to increase the rates?” He is making about $16,000 a month, and he should be making about $20,000 a month. In the end, he said he ended up taking the owner finance deal. We came up with a whole bunch of different terms. We came up with three different terms where we had 10% down, 15%, and 20% down. We had an interest rate. Typically, if I put more down, the interest rate is lower. If I put less down, the interest rate is high.
Right now, everybody wants to get into self-storage investing, so it’s a little bit pricier.
We started at 4% and went up to 5% interest, and then we showed how much he would make. The term of the loan was 10 years, 15 or 20 years. We came up with three different scenarios and sent over the offer. In the end, what he said was he wanted $300,000 down. He wanted less than 20% down, 4.7% interest and a 10-year note amortized over 20 years. The mortgage came up to $7,000 or $8,000 a month.
We will be making about $20,000 a month. It is definitely enough money for the mortgage. Also, what he is going to do is the first 90 days are no payments, the loan starts after 90 days. I asked him, “Can I have 90 days to get in there and stabilize the facility, and then after 90 days, I can start making the payments?” He said, “That is fine.”
We’ve got the facility for $1.64 million. He wants $300,000 down. It is a 10-year note at 4.7% interest amortized over 20 years. That was the deal. It worked out good. I am excited. Our acquisitions team is there taking pictures and videos. We have a due diligence checklist that we have. They took the due diligence checklist, and they are our boots on the ground. They are looking at the whole facility and getting all the information about all the HVAC units, doors, and notches. There is an office that is there. I talked to them. They said it was great. It was an awesome day. We are going to meet one time and go over everything.
We have that under contract, and I am looking forward to purchasing it as soon as we can close. That is deal analysis in a nutshell. Hopefully, that at least gave you an idea of what you should be asking sellers and what you should be looking for in the deal. Remember, you have all the questions and all the things that you need to be asking the owner so that you can input that into the deal.
You need to be looking at the competition. You need to be looking at the unit mix. You need to be looking at what your NOI is going to be. Also, your NOI minus the mortgage. Are you going to be able to afford the mortgage? What is your net going to be so that you can have some money left over? I went over all that. Also, your loan and what your loan entails. Your loan is going to signify whether or not you can move forward on the deal or not.
Everybody’s loan is different. You have to have those terms. Let me go over the questions real fast. Right after this, I am jumping off and going to the Self-Storage Fund of America pitch. I pitch that every Monday night, right after this session. You are more than welcome to come and listen in. If you are interested in passive investing in the self-storage world, it is StacyRossetti.com/fund. Register, you can hop on, and you can come to the pitch. I do that every Monday night.
Where is the value area with cap rates higher than 9%? You can do this in tertiary markets. You can get some good cap rates. The truth is it is in the primary market. I am buying it at a 6% cap or buying it at a 5% cap, raising it to a 10% cap. It is going to be over 9%, and then I will be able to sell it later at a 4%, 5$ or 6% cap. You could typically buy an income-producing property in a very tertiary market at a 9% cap.
We have seen this many times inside our business. “If you were to find a self-storage at 60% of the value, have you worked with the lender that would give you 100% percent financing?” No. There are not a lot of lenders out there that are going to give you 100% financing in the commercial world, unless you have seen this, you let me know but I have not seen this anywhere. This is not residential.
Commercial is a whole different ball game. They are not going to give you 100% percent financing. They want you to have skin in the game. I do 100% percent financing. I personally do not do it. I borrow money, and my lenders do 100% financing but they are private lenders. You can get a private lender to fund you at 100%. Are they going to lend you $1.6 million? No, but a couple of hundred thousand dollars.
If you need 100% financing, you should get your finances in the row, or you should wholesale or can partner. Wholesale or partner. You can be the boots on the ground person that is managing and doing all the work, and then if you can have a partner that brings the money, you can split the deal and do it that way as well, too.
“Do you find the price of a storage facility higher or lower than years ago?” It is definitely higher. I talked about this in the very beginning. People are paying more money for storage. When I got started, the primary market was a 6% cap, and now it is a 4% cap. People are definitely paying way more money than they were years ago. It is a market cycle. If you do not want to pay that much, eventually, it will come back down.
You have to hold out. I do not know how long it is going to be, but everybody wants to get into self-storage investing. It is a bit pricier but if you talk to owners, you can get deals like the one I found. I appreciate your time. I am going to go ahead and hop off and go onto the next session to the Fund. I look forward to seeing you there. Take care.
