The self-storage industry is booming, and there are great opportunities for investors to get involved. But before you buy a self-storage facility, it’s important to do your due diligence and run a thorough deal analysis. In this podcast, Stacy Rossetti shows you how to run a deal analysis on a storage facility lead. She walks you through the entire deal analysis process, step-by-step. She covers everything from gathering financial data to assessing market conditions to analyzing your potential cash flow. Whether you’re a seasoned investor or just getting started, this podcast will give you the tools and knowledge you need to make informed decisions about self-storage investments.
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Watch the episode here
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The Step-By-Step Process To Run A Deal Analysis On A Storage Facility Lead
The deal that I’m going to show you is one of the deals that our virtual assistants found for our students. I was going to go over that process so you could see what you could be doing. You could be doing this yourself if you want to. You can go out and just call owners and put offers in. You don’t have to hire virtual assistants or do turnkey acquisitions.
I push calling the owners and asking them if they’d be interested in just getting an offer on their property, but giving them an offer. I do talk to a lot of owners quite often, and they say that a lot of people call and say, “Would you be interested in getting an offer?” yet they never get an offer. They get calls every single week, but they rarely ever get an offer on their property. If you are going to call owners and talk to them, follow through and do what you’re going to say. Otherwise, why are you wasting your time?
That’s what we do. I have fifteen virtual assistants. They call owners all over the country. We’ve called every storage facility in the country, pretty much outside of the primary market, like hedge fund properties. Pretty much any owner where we can get ahold of them and talk to them, we’ve called every single property like a promise. We’ve called every property in the country. That doesn’t mean that we got a hold of them. That doesn’t mean that we were putting offers out on every property because when you put offers on properties, it’s about timing.
The owner could say yes or no. Once they say yes, you have to get the information from them to be able to give the offer. A lot of owners will say, “I want an offer,” yet they’ll never give the information or stuff. There are a whole bunch of different types of calling owners and being able to fall through. We have called probably every secondary and tertiary facility in the country. We have that list as well too. We’ve built that list up.
The truth is that for every 50 owners that you talk to, only 1 of them is going to want an offer. That’s not even every 50 phone calls. That’s every 50 owners. For instance, one of my VAs, on average, calls anywhere from 20 to 30 facilities a day. The reason I know this is because we keep track of it, first of all, but they do an end-of-shift report every day. They put how many calls they did, how many warm leads, and how many hot leads. I can see them calling anywhere from 20 to 40 facilities a day. They barely ever get any warm leads and rarely ever get any hot leads. If you had 1 virtual assistant calling for every 50 owners that they talk to, 1 owner is going to want to get an offer. It’s a numbers game.
I talk about this a lot in my course. Also in the coaching program. There’s cold calling. There’s also going on Crexi and looking for deals or talking to a commercial real estate broker like Jake is and looking for deals. There’s also where you could send letters out, and then they’ll call you. It’s three different types of owners, facilities, and leads. You want to make sure that you differentiate between all the different types of leads that you have.
If we’re cold calling an owner, that’s a different type of lead than when you send a letter to an owner. It’s a different lead from when you talk to a broker. In-house, we have one virtual assistant that does nothing but call and talk to brokers on Crexi, LoopNet, and stuff like that. We send out postcards to owners, and then they will call us back if they’re interested in selling. We have cold calls. This is us randomly calling owners.
We do all three of them. Each of them is a different type of lead. If we send a letter out and some owner is trying to call us, then they’re interested in giving you all the information you need so that you could give them an offer. They want an offer. It’s a very good hot lead. Whereas if you’re randomly just calling people all the time and you’re calling owners, that’s more of a warm lead. It’s a lot of work to do that.
It’s a different way to look at it. I try to do all of them because we want to know every deal and facility out there. Now you have to remember that you guys are all out there trying to get into the investing world. Guess what? I am out there with fifteen virtual assistants calling every storage facility in the country. If I’m doing it, I can guarantee other people are doing it as well too. There are not a lot of people who do turnkey acquisitions like we do. All of these bigger players have a team of acquisitions, virtual assistants, or acquisition specialists who are calling owners. You have to make sure that you understand the numbers gained.
When we get into this lead that I’m going to talk about, you have to understand how much work it took to get this lead, first of all, to get the owner to give you the information that you need to run a deal analysis. It’s a lot of work. It’s not easy. On top of that, you have to get the information from the owner, and then you have to create this analysis. That also takes quite a bit of work. To get to the point where you can give an owner an offer and then get them to want to be interested in the offer that you gave them is a very rare instance. It never happens except for every once in a while. That’s it. You have to remember that this is a huge numbers game. You have to have a lot of grit, and you have to work hard to get to the point where we’re at.
John says, “You put in $87 million worth of offers. Do you mean that much in offers waiting for the sellers to respond?” Yes. Exactly. We’ll put offers out. What we do is once we get all the information out, we get to the point where we can get them to the offer. You don’t have to use Pipedrive. We have a lot of leads, so we needed something like a vehicle to manage all of our leads.
We just put in for the valuation of what that lead is because there are two different types of numbers. It’s the number that you want to offer and then there’s the number that the owner wants. That could be close to the same type of number, or it could be way off. For instance, we made an offer on a property, I can’t remember where it was, but it was $400,000 when the owner wrote back and he was like, “You’re way off. I would never sell this property for $400,000.”
Way off could be $600,000, $800,000, or $1 million. In the owner’s mind, it could be whatever it is. We put the number in on the number that we’re putting the offer in. That’s how we evaluate the property. We don’t know what the seller wants. We just know what we’re putting the offer in for. It’s $87 million worth of our idea of what the property is valued at. That’s really where it’s at.
Facility Leads In Texas: Absolute Storage
First of all, this facility that we found is in Texas. All my virtual assistants are amazing, honestly, but I have a good virtual assistant in Texas. It’s so funny because, in 2022, we were working in Texas, and it was very difficult to find leads in Texas. The market in Texas has shifted. One thing that I love about having turnkey acquisitions at my fingertips is that I have a very good idea of the market for every single state in the storage market. We’re calling the owners.
In 2022, we had two virtual assistants working in Texas because Texas has 5,000 to 6,000 storage facilities. We had two virtual assistants calling Texas. It was very difficult to find leads in Texas. It was even more difficult to find owners who would be able to work with us on the types of prices. We did close a couple of deals in 2022, but it was very difficult. Whereas in 2023, the market has changed in Texas. If you’re interested in Texas, you really should be calling and talking to owners. Owners have changed their mindset in Texas and they’re wanting offers. It’s like nationwide, but it’s very interesting because we were struggling in 2022 in Texas.
This lead that we have is in the Austin area. Not in the Austin metro area, but outside the Austin area. If everybody knows Texas, you know that. You have the I-35 corridor that goes from Oklahoma City all the way down to San Antonio. That 35 corridor is being built out. Oklahoma City down to San Antonio will become this massive, huge, just one big metro. In my personal opinion, it will become this way. I grew up in Austin, so I know Austin very well. It takes about three hours to get from Austin to Dallas. When I would drive from Austin to Dallas, there was nothing. Even going through Waco, it was just like, “I just missed Waco.” Now you’re driving from Dallas to San Antonio and it’s one city after the other. It’s growing.
We don’t do a lot of stuff along the I-35 corridor. I tell all my virtual assistants like, “Stay away from that area. You need to be an hour on each side, outside of that area.” She did find this deal, which is in Kingsland Texas, and it’s at least an hour or further outside of Texas. It’s near Marble Falls and Granite Shoals. In that area, I’m going to tell you that it’s a very good area to be investing in because that’s like Austin. Austin is spreading so much that it’s going up. It’s out into Dripping Springs. It’s going up into the Granite Shoals area. The Spicewood area is where it’s at. This is a Kingsland Texas lead that we have.
It’s so fun for me to talk about self-storage investing. I love it. I appreciate everybody reading. It just makes me so happy. Here’s the Austin area. Here’s San Antonio. Here’s Austin Canyon Lake, a huge lake with a lot of RV parking, and then here is Kingsland. Austin is essentially growing towards Spicewood now, but from Lakeway to Marble Falls is about 45 minutes. It’s not too bad. When I was growing up, Lakeway was country, but now it’s part of Austin.
This is where the property is at. A huge development is going on in this area. I would say that Austin is going out toward this area. Kingsland is considered a little country town. It has 7,000 population. It’s not a big town or whatever. Marble Falls and Horseshoe Bay are also not that big of a town, but this area has quite a bit of people living in this area. It’s growing very fast. It will only just keep getting better, but it is a little bit country. It’s the Texas Hill Country is what it is, which is very beautiful.
We found this facility, Absolute Storage. The way that we found it is we virtually drive for storage is what we do. That’s how we find our facilities. We just go on Google Maps and call all these people. This one’s called Absolute Storage. It’s 4605 Skyline Drive. We called this owner. It’s not on Google Maps. This is a storage facility that does not have a website. It does not have a phone number. It doesn’t have a website or anything. It does come up with pictures. If you put it on satellite view on Google Maps, you could see a lot of storage facilities in this area.
How we find our facilities is virtually drive for storage. Share on XThis Absolute Storage is not on Google Maps. This is the good thing about virtual driving for storage. You see the phone numbers right there and you can call them. That’s exactly what we do. This is the property right here. We call this owner and see if they’re interested in getting an offer. That’s all we do. That’s what happened. They said yes.
What happens when they say yes is that in Google Drive, we create a folder. You can see that we have a competitor. We just name it the name of the facility, Absolute Storage. We have Competitors, County Information, Deal Analyzer, Demographics, Executive Summary, Maps and Street View, Offer Letter, Radius Plus, and then Regrid. This is what we’re using to pull data from all of our properties and stuff.
We create this folder, and then this is where you try to get all the information. A lot of this information you can gather yourself. You don’t need the owner to look at the competitors, get the county information, look at the demographics, and go into Radius or Regrid and pull the information out. As soon as we know that the owner wants an offer, we create this folder in Google Drive. The main thing is that we need the numbers from the owner so that we can put them into the Deal Analyzer. At least I wanted to show you all that this every single folder looks like this.
Creating An Executive Summary
What happens is we create the executive summary. The executive summary is like the OM. It gives the summary of the entire property, and this is what we share with our students so they can see all the information about the property. You can see here that the number of units is 88 units. It’s on 0.69 acres. There’s no room to add on. It is what it is. Vacancy rates 2%, it’s full. Every facility in this area is going to be full because it’s just a booming area and it’s making $62,000. Its insurance is $3,400, the property tax is $3,176, and the utilities are $720.
This is some of the information that we gathered from the owner to run the numbers. On my Deal Analyzer, the insurance cost, the property tax, and the utility costs are just a formula for us because we set it up on the Deal Analyzer to be a formula. We don’t have to ask the owner for expenses because when we run our Deal Analyzer, we know what their expenses are and we have a formula for every single one of our expenses, which is in the Deal Analyzer.
The owner said that the storage facility has never been vacant for a couple of years, and he plans on raising the rent in 2024 because his rent is way too low than his competitors. There is that. That’s what it’s looking like. It’s a good-looking store. There’s a very good first storage facility to buy in Kingsland, Texas. Here’s the demographics. It’s what we looked up the population within a 3, 5, and 10-mile radius. It’s got 2,222 people. That’s a very good number for storage.
Here’s the Regrid information. Regrid is where you can pull up the property report card. Here’s the information with the taxes, the value of the property, what the county is valuing the property at, how big the acreage is, etc. That’s what it looks like. You have pictures, overviews, and stuff of the facility and then where it’s located in Texas. We call that the bird’s eye overview. We have the competitors. We saw those on Google Maps, LBJ Self-Storage, and Hill Country Storage. They all look the same, honestly. Kingsland Storage is an indoor one. Reven Storage, US Storage, Earthly Treasures, and Prairie Creek. That’s the competitor. This is what we call the executive summary.
That was the purpose of the executive summary. Another thing I was going to tell you, too, is that everything that’s in the folder is everything that I need to make a decision on whether or not it’s a good deal. What that means is it’s everything that the lender’s going to need to see if it’s a good deal. It’s also everything that a private money lender would need. It’s everything that you and a buyer would need. When you compile all that information and put it into the folder, you’re saving yourself, your lenders, and your buyers, if you’re going to wholesale it or whatever, a lot of time and effort on putting that whole package together.
These are the numbers that he gave us. He said it was $62,000 income and there are 88 units. It’s a total of 13,160 square feet, and it’s 2% vacant. For the market cap rate, we ran the numbers at a six cap. It is country and one could argue that that’s too low, but the truth is, and what I’ve noticed over the past couple of years of doing this in the Texas market is that the Texas cap rates are a little bit lower than most places, first of all.
This Kingsland area, although it is outside of the Atlanta metro area, that area is booming and growing. A lot of people are looking for properties in the country, I’m not going to pay a cap rate lower than 8%. The truth is there are no deals out there like this. If you’re looking for a property out in the middle of nowhere and you’re trying to get an A-CAP, it’s going to be very difficult to find. We rarely ever find that, honestly. We are typically in Texas, in Texas, California, and a lot of Florida, we’re doing six cap numbers. In all the other places we’re running our numbers at the seven cap.
Running The Deal Analyzer
That’s where we’re at. We believe in giving the owners a fair offer and not cheating and making them feel like crap a lot of the time. When you give a really lowball offer on a property, then it pisses the owners off. We don’t want to do that. We want to build a relationship with them. We try to be fair. Now on my Deal Analyzer, remember anybody can purchase this Deal Analyzer. You just go to my website, but anything in yellow is what you fill in. The question is, what do you ask the owners when you talk to them? What information do you need? Everything in yellow is what you need. You need the annual income, the number of units, the total square footage, and your vacancy.
You need all these expenses here. What’s the property maintenance? How much are you going to be spending for your boots on the ground and maintaining the property? How much is your staffing? Staffing is your call center, whoever’s going to answer your phone, and whoever’s handling your auction process. It’s where your two people that you’re going to be helping you, or if you’re going to do it yourself.
When you click on the Deal Analyzer sections on ours, at least there’s a formula you can see. You can see how we’re running the numbers to get to that formula. Anything in yellow you can always override. You can always say like, “I can do it cheaper. It’s going to be more expensive or whatever.” You could come in and you could change it, but we try to put all the formulas in basic, generic. We’ve looked at every property and every state. This is also based on our expenses as well. We run our expenses high. Maybe if you’re buying a little tiny facility that’s 50 units or something, expenses won’t be as high because the expenses here are coming out to anywhere from 32% to 38% based on the purchase price.
The higher the purchase price, the more expenses, the lower the purchase price, the lower the expenses. I have one student I talked to who was like, “I run my property at 27%.” I’m like, “Great, do that then. You just change your numbers. That’s all you have to do.” We don’t, we’re expensive. We run our numbers high. We run our numbers conservatively. You can see here that you need to figure out how much it’s going to cost for your initial clean-out and then a new bill. If you’re going to do any new build, renovations, CapEx, or something like that. You’re looking at your closing costs. How much is it going to close it?
If you’re going to close it yourself, maybe it’s just a 1% close cost. If you’re going to get a realtor to close it, then you need to change just to three. It could be anywhere from 1% to 3% to close the property. You could update it any way that you want. The property taxes are a formula in our Deal Analyzer, but if they come out to be higher than what our number is, then you just override it. If you end up buying my Deal Analyzer, there is a formula here as well. If you cannot get the information from the owner, then you could just leave our formulas in and you’ll be close. You do need the annual income, the number of units, the total square footage, and the vacancy. That’s it. For your market cap rate, we could change it to 6, I could change it to 7 cap, whatever you want to run your numbers at.
Here you can see that we run on the Deal Analyzer. We run our numbers in three different ways. The current, potential, and after updates. The current is as is, right now, what is the value of the property, based on the numbers that you’re giving me. The potential is when we’re taking it from, if it’s a mismanaged facility at 50% full to 8%, our goal is 8% full on all of our properties. This is us trying to get to our goal.
This one’s full. It’s 2% and we changed our numbers to 8% because we do run our numbers at 8%. Rarely ever is our property always 98% full. It’s not that way. We’re running our numbers at 8%. Once you get into bigger properties, you may want to increase this. If you’re buying a $3 million property, you may want to change it to 15%. It is hard to keep your occupancy up. You have to keep that in mind. In a smaller facility, you can maybe hit 8% or 10%, and then in bigger facilities, your vacancies going to go down. You want to run your numbers at a different percentage.
The one thing I wanted to show you is this after-update section. After updates for us means opportunity. The opportunity is can we increase the rent or can we add more units? If you’re going to add more units, you can change the number. If you’re going to add more units, you’re going to be changing the square footage number as well. You would just change these two numbers.
If I could add 100 units, I could do that, or 10 units, 10,000 square feet, or whatever it is. You just change those numbers. We’re not doing that here because you know that it’s just 0.69 acres, there’s 88 units and that’s it. The good thing is that when you think about that 0.69 acres is less than an acre. He has 88 units on this property. It gives you an idea too of how many units can you put onto an acre property. If you have a square piece of property, you should be able to put 100 units on that property. This is exactly a very good example of that.
Now, if you had some weird shapes and stuff, it might change the sizes. People ask me all the time if I have an acre of land, how many units? An acre of land typically is a hundred units, unless it’s like some completely god-awful weird shape or something. Now you can see this is what you’re filling out. Anything in yellow, this is only change the seals in yellow and only when you have to. Anything in yellow is what you’re going to need to get from the owner so that you can input it into your analysis. Whether or not you use my Deal Analyzer or somebody else’s Deal Analyzer. This is the information that you’re going to need to run the analysis.
On the info tab, which is the tab that we’re on, these are your inputs. This is what you’re inputting into the Deal Analyzer so that you can get your valuation. You need this number right here. This is the most important number of all the numbers, 0.67. Right now it’s $62,000, 88 units, 13,000 square feet, and 2% vacancy. He’s at $0.40 a square foot. What does the competition call for? That’s the question of the day.
That is why we have the unit mix and the competition tabs. You can see here that we ask the owners like, “What’s your unit mix and what are you charging for your units?” He doesn’t have a website, so you can’t go on and look at what he’s charging. A lot of times whatever’s on your website is not really what you’re charging. You want to make sure that you ask the owner. What’s your unit mix and what are you charging? He has 10x14s and 10x28s. He has 82 10x14s and he has 6 10x28s. We also can differentiate between outside and inside access if it’s climate cold controlled or not. You can see here that he’s got 82 units, it’s 11,480 square feet, and he’s charging $60 for those units.
He has 10x28s, he’s got 6 of those, it’s 1,680 square feet and he’s charging $100. That comes out to $0.43 and $0.36 a square foot. Now what does the competition call for? You can see here, that there’s a competition section and there’s an after update section. After updates, if you’re going to add more units. That’s why it says plus and minus units right here, or if you’re going to change the price, you can increase or decrease the price.
The competition comes from this section right here. You can see here that we’ve got the 10x14s and then the 10x28s here, and we’re calling the owners and we’re doing apples to apples. We’re trying to figure out what are all the other competitors charging for these two sizes. Do they have them and what do they charge? You can see that we have a lot of competition. This last one here is in 10 miles, but within a 2-mile radius, you have a whole bunch of competitors.
That’s what we look at is miles away. You can add up the square footage and you could put the square footage there. What you do is calculate your net square foot per capita, which means that you add up all of these competitors and their total square footage, and then you can divide that by the population. You have to get the population as well for that area. You can always look at the competition, the square footage and you could say like, “There’s a lot of competitors in this area. What is the total square footage? Are there too many competitors in this area? Is it oversaturated?” There are a lot of competitors in this area.
When you’re calling up the competitor and you’re asking them what she has here. Are they full or are they not? Whatever one’s answered, they said no, they’re not full, yes, they are. I would say most of the facilities in this area are probably going to be mostly full, but not completely because it’s such a booming area. You can see here the prices. You can see that we’re charging $60 and $100 on our property, and the competitors are charging anywhere from $75 to $130 for a 10×14. They’re charging $132 to $200. It comes out to $97 for a 10×14, and a 10×28 is $160, which is $0.69 or $0.57 a square foot.
On Financing
You want to know what the average price per square foot is, which on our Deal Analyzer, essentially these numbers automatically go into this right here. You can see it’s the $0.69 and the $0.57, which comes out to $0.67 or $0.68 a square foot. That’s the average price for competitors for the units. That number is going right here on the info page. This number is one of the most important numbers in your deal analysis. Now that we’ve got all this yellow filled out you can see what the valuations come out to. $535,000 at $0.40 and $0.67 a square foot, it’s around $1 million. If he was actually at $0.67 a square foot, he could sell his property at $1 million, but he’s not at $0.67 a square foot, he is at $0.40 a square foot. The question of the day is, what should we offer the property? This is where the financing comes in.
It all depends on how you’re going to pay for this thing. Are you going to pay for it in cash? Are you going to get some creative deal structures going, or are you going to have to go to a bank and get a property? This is what we’re doing we’re running numbers based on what your financing solution is. It depends on you. Are you going to be able to pay cash for this thing? Do you have $500,000 or are you going to have to go and get bank terms?
The banks right now are super conservative. This is back when we ran our numbers at 25% down and 6.5% interest. This is an older lead couple of months, but I would say right now, you really should be running your numbers at 30% down and 8% interest. This facility is an income-producing property. It will not work for an SBA loan, but you can always run numbers on an SBA loan as well. The bank financing for a conventional loan is going to be around 30% down and 8% interest. $510,000, if we could get it at $510,000, then it would be an 18% cash-on-cash return and the mortgage would be around maybe almost $3,000 a month.
You’re running your numbers based on whatever the bank is telling you in this column, or you could always run your numbers on what your private lender tells you. If you can get an interest-only loan, then your numbers will change. On the Deal Analyzer, you can run it either as fixed interest or interest only, and some banks offer interest-only loans for maybe the first six months or a year now just to get you to work with them and try to help you with your deal and stuff. You can always ask the banks like, “Do you do interest-only loans?”
That’s how you can run the bank or the private financing. When you are running your numbers, you need to know what the down payment going to be, your interest rates, how long of a balloon, what is your loan going to be for, and what the amortization is. If you want to try to get the seller to seller finance, which we push seller financing, then we run our numbers this way. You can see that we offered a little bit more money for seller financing because the thing is with bank financing, the DSR is very important. You want to know what the DSR is, whereas in seller financing, who cares about the DSR.
We always offer a little bit more money for the seller financing. This is our basic offers, 10% down, 15%, and 20% down, and then we start with 4%, 4.5%, and 5% interest. We run our numbers at 10 over 20 years. The truth is these three offers could be like a plethora of different numbers. You could have different offers, different purchase prices, different down payments, different interests, and different balloons. You could change this to interest only. There are a million different ways that you could run these numbers. You just have to try to come up with what is the best number that works for you based on cashflow, but then also what is the best number that works for the owner based on what they want as well.
You can ask the owner, you could be like, “I’m going to do a couple of creative deal structures. Do you have a mortgage on this property? Is the down payment important so we can pay this mortgage off? Or are you okay with getting maybe a slightly bigger mortgage payment?” A lot of times they’ll say like,
“I need to be making $6,000 a month or whatever.” You run your numbers based on what their needs are. This is a conversation that you have with the owner.
What we do is we start with what this an offer here and we’ll just do a very generic offer and then they say, “I’d be interested in doing some seller financing.” I say, “Tell us was any of the ones offers that we gave you, were they close to what you want? Or is there something else that you need?” You start negotiating with the owner. That’s how you play around with these little calculators here so that you can come up with a whole bunch of offers.
We came up with a $510,000 cash offer and then we came up with $600,000 owner financing offers. We also ran the numbers going to a bank, that’s how we came up with the $510,000 because we wanted to make sure that we could afford the mortgage. These numbers are all populated on this financing inputs page. You could see there’s the cash-on-cash and the net after the mortgage and what your terms are. How much money the owner is going to make if they sell or finance is a super important number. You could say here, pay off the total paid.
If he took offer number one at $600,000 at 20% down 4% interest, he would make $756,000. He’d make an extra $150,000 interest just by seller financing a deal. We pushed that. We try to get the owners to understand like, “I could pay the bank that, or I could pay you that. Why don’t you just let me pay you?” You could always change the terms of the balloons. Let’s just say, “I’ll do that for five years.” In five years you’ll make $87,000. You could play around with all these numbers, you could do all kinds of stuff.
If you want to have a lower payment, you could say, “What if I amortize it over 30 years, if I do a 5-year balloon and amortize it over 30, you’re going to get $2,300 a month. Is it okay if I pay you $2,300 a month for the next 5 years? After that, I’ll either sell the property or refinance.” A lot of times they’re open to this. We always push. We run five different offers at the same time. That is what we do.
Another thing I wanted to point out too is, let’s just say that you do have to go to the bank and get a loan. We’re here at this $510,000. You want to make sure that your DSR works. Up here in the left corner, you can see that the bank financing needs to be picked. You can run your numbers five different ways at the same time. We pick bank financing, nothing changes except for the debt-to-service ratio. The DSR is super important to the banks. They want to have a 1.3 DSR.
To get into a 1.3 DSR at the interest rate that is out there in the world, that would make this property probably worth $400,000. Let’s go to the DSR and you could see 1.2. Around $400,000 is what we would have to offer on this property to be able to go and get a bank loan right now. I want to point that out to everybody because people don’t realize that money doesn’t get you very far right now. That’s what you have to tell the owner as well. “If I were going to go to a bank and get a loan based on your $62,000 that you’re making right now, I’m going to have to offer you $400,000 to get that DSR to 1.2. If you want more money than that then why don’t you just seller financing to me? I’ll pay you $600,000 because I don’t care what the DSR is. All I care about is my cash-on-cash return.”
People don't realize that money doesn't get you very far right now. Share on XYou see how that conversation is going. This is the same conversation that we had with this guy. After we went back and forth and talked to this guy and came up with a whole bunch of different offers. He was adamant that he didn’t want anything less than $800,000 on this property. That’s what he wanted. There’s no way that you could pay $800,000 for this property. Even if you own or financed it it’d be very difficult to get to that but we did push that. We said, “We can get you to $800,000 if you can seller finance. What if we do $650,000 down and we do a 10-year loan and we amortize it over 20 years, you’re going to make $315,000 in total. In 10 years you’ll make $800,000. That will be something that you’re open to.”
A lot of times they have that number stuck in their mind. We try to do the owner financing and try to get them to that number by seller financing over the course of 5 or 10 years. This guy wanted $800,000 now. If you run the numbers at what he wants you can see it’s $800,000 with a down payment of 30% and 8% interest. The mortgage comes out to $4,600 or $4,700 in cash-on-cash is less than 2%. The numbers don’t work.
The Magic Letter
This is an example of an owner, who has a number stuck in his mind and he’s not going to sell his property until he gets that number. We went through the whole process of talking to him and getting the information, putting all of the information from him into the Deal Analyzer, running our numbers, and making an offer based on what we thought would be a good fair offer. That’s how we came up with the magic letter which is created right inside the Deal Analyzer. You can see our offers were $510,000 and then $600,000 for the seller financing. Here are the terms that we were offering, here’s how much money he would make over the course of the length of the loan, and this is the total net of the owner.
We would say we could close in 90 days and have a due diligence period of 45 days and you can change the numbers. If you seller finance to me I can close in 60 days. I need 20 days of due diligence and I need 60 days to close and then that will just be generated right onto the letter here just change those numbers right here. You can see that financing inputs are very important. You can run your numbers to come up with a whole bunch of different offers. You can run five different offers at the same time on the Deal Analyzer.
Another thing that’s cool about this thing too. I wanted to show you all. Here’s the cashflow. This is showing you based on the different offers that we have. Our cashflow would be around this number right, after an update, remember, this is once you increase the rates and stabilize the property you would be at these numbers here. You want to make sure that when you’re looking at your deal you’re looking at, “This is where I’m going to be so I know I’m going to have to come out of pocket to stabilize these properties increase their rents, etc.” I have to do is just increase the rent and then maybe some people would leave but you’d have to just re-rent those.
This one is very easy to stabilize this property. In total, after you stabilize it and get it to 10% vacancy or fuller, you would be anywhere from an 11% to a 26% cash-on-cash return. You look at the numbers, you can see the gross income, the operating expenses, and then you have the NOI minus your mortgage and then you get that cash-on-cash return. It shows you the cashflow as well. You want to be looking at your cashflow as well as running the numbers for the offer for all the financing inputs.
We run our numbers, we look at the valuation right, and how much income it’s making minus the vacancy minus the expenses is the NIO minus your mortgage. We look at the potential. This is if you have to get it from 50% full to 10% full and then we look at the after updates which is an opportunity when we’re increasing the rent or adding units. We’re evaluating the property that way as well. There are only three different ways to look at your property when you’re evaluating it.
This is available for anybody to purchase but I want to show you exactly the offer that we made, the owner did not like our offer, he wanted to have more money obviously so we didn’t get it. We went back and forth on this property to see if we could come up with a solution. He wanted to work with us but he just wanted more money than we were willing to spend which is typical. It was a great deal, honestly. It just takes a little longer. That is a typical lead that we find just by virtually driving for dollars, calling the owner to see if they’re interested in getting an offer, getting all the information from the owner, putting it into the Deal Analyzer, creating the folder, creating the executive summary so we can analyze the deal, and then looking at the numbers of the property.
Putting the financing inputs in coming up with four different offers that we send over to the owner having him look at the offers and then come back with a counter and then negotiating. A lot of times we’ll hop on Zoom and meet the owner and talk to them as well. He did not want to get on Zoom. He was an old school. He doesn’t have a website or anything so he couldn’t even figure out technology. He just had a phone. That was it. He didn’t want to meet us on Zoom or anything. We were going to have one of our students go out there and meet him but the difference in the purchase prices was so high because he wanted $800,000 and we wanted to offer $500,000 to $600,000. We decided to move on and not waste our time anymore.
That’s a very good property. Anybody can always call him. He’s adamant about the $800,000 unless you all could talk him down or whatever, but we just couldn’t do it. That’s a good example of stage one. Finding a deal and trying to put the offer and get it under contract. I wanted to show you all an example of the lead that we found that was filmed through Turnkey Acquisitions. You’re more than welcome to look at the website StacyRossetti.com and just click on StorageNerds. That’s where the Turnkey Acquisitions information is if you’re interested in having us help you send you leads.
Turnkey Acquisitions is lead generation, and then the Deal Analyzer is also on the website as well. You can do it on your own if you want. Go to StacyRossetti.com and you can get the Deal Analyzer as well. You could just get the online course. It’s a Super Simple Self-Storage. Make sure you all come to my website and then check everything out. Everything’s there for you. I appreciate you all for reading. Take care.
