Are you already curious about the lucrative world of self-storage investing? Learn how to analyze the self-storage industry and identify profitable investment opportunities. In this episode, our host Stacy Rossetti covers everything you need to know about self-storage deal analysis, from market trends to financial modeling. She discusses the basics of self-storage investing, including the different types of facilities, the target market, and the key drivers of profitability. She also dives into why she is all about acquiring severely mismanaged facilities and how you can triple the value of your property, not just double it. Learn how to calculate the crucial square foot per capita metric and why it matters in your investment decisions. Stacy also discusses a tool, the deal analyzer, that will help you identify the opportunities you can get in every deal. Finally, she provides some tips and advice for beginners who are just getting started in self-storage investing. Learn what to look for in a self-storage facility and how to avoid common pitfalls. Let Stacy guide you through the world of self-storage investment, and into success. Tune in now and get started with your self-storage investment game.
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A Beginner’s Guide To Self-Storage Deal Analysis
What I’m going to do is just spend some time on the Deal Analyzer. I will walk through a deal with you so that you guys can see how I run my numbers. If you’re interested in buying the Deal Analyzer, you can go to my website and then pick it up and you could practice. Some training videos go with the Deal Analyzer. You don’t just buy the Deal Analyzer. You buy the training videos, and then it walks you through how to use it.
Blairsville, Georgia Facility
This is the facility that we picked up in 2022. It’s in Blairsville, Georgia. This is what it looked like when we picked it up. If I zoom out, you’ll be able to see where we bought this. Mission Self Storage is our brand for the facility. You can see as we zoom out where it’s at. It’s North of Atlanta, it’s in the Smoky Mountains. Here’s Chattanooga and Knoxville. It’s about an hour and a half from Atlanta or another about an hour and a half from Knoxville. It’s right in the middle of the mountains.
Would you consider this area as a primary, secondary, or tertiary market? The primary market is like a big city, even the suburbs of a big city. If you’re a secondary market, then you are in towns that are in the middle of your state. The tertiary market is in the country. I’m seeing a lot of tertiary. It’s in the middle of nowhere. The truth is if you know anything about the Atlanta market or if you know anything about Georgia, you know that this whole area right here is just booming. You can see here that the 575 comes out of Atlanta. We lived in Jasper, and it turned into the 515 at Jasper. You take the 515 up and it goes into Hiawassee. This area’s gorgeous, and beautiful up here. I highly recommend going and visiting, get a little cabin in the woods. Here’s a little cabin that you could get in the woods. It’s super nice.
We’re right in between Blue Ridge and Blairsville. We’re not quite in Blairsville, but the address is Blairsville. There’s a big lake right here. There’s a lot of boat and RV parking in this area. There’s honestly a lot of storage in this area. There is a lot of growth in this area. The percentage was upwards of 5% growth in the last couple of years. The reason why is because everybody’s trying to get out of Atlanta because Atlanta is just too much.
Especially, Canton to Ball Ground to Jasper about right at this line right here, it is getting to be built out. As you get past Jasper, it gets to be a little bit more deserted. I’m talking about this because you need to understand what cap rates you should be running your numbers at. When you’re looking at your facilities, you have to know what the market cap rate is. If you don’t know what the market cap rate is, what you could do too is just go on to Crexi and you could look at what other brokers are using for their cap rates when they run their numbers and when they put their deals out on Crexi.
If you want to know where you should be running your numbers, this is not an eight cap. There are not a lot of deals out there that are eight caps. Back in the day, when I first started getting into storage, you could get deals at 8, 10, or 12 caps, but you can’t do that now. There’s still that gap between what the owner wants, what the market calls for, and what the buyer’s going to pay for it. You can’t get eight caps. We are calling every owner out there, and they’re just really stingy on their prices. This is not an eight cap. This could be a seven cap area.
We ran our numbers at a seven cap in this area. If you get closer to Atlanta, you’re coming from South of Ellijay, all this area is going to be more of a 6.5 or 6 cap or maybe even be a 5 cap. Canton could be upwards of a five cap. Canton has three-story storage facilities and stuff, and then it phases out. It’s good to know your market and understand what types of commercial buildings are there so that you know what cap rate you should be running your numbers out.
Know your market and understand what type of commercial buildings are there so you know what cap rate you should be running your numbers out. Share on XI’m going to go to satellite imagery so that you can see what it looks like. This facility here, you drive up, and then you always take a left at the gas station, and then you drive in. It’s over here. This is an RV parking place. He has no storage units at all. It’s just for boat and RV parking. He caters to everybody that’s going to the lake up here. I’ve driven around the entire lake. There’s a lot of boat and RV storage. It’s not a lot but it’s a good amount. He caters to them so somebody can come off the highway and then pick up their boat and head on over to the lake. That’s a newer facility here. He’s a really nice guy.
This is what the thing looks like. This whole property right here goes a little bit like this much property here. I’m going to get into it. This building right here is climate control. This is an outdoor storage, non-climate control. There’s a house on the property right here, a nice house. There’s a barn right here, like a big 400-square-foot barn. It’s like the owner’s crap that he’s just like, “No, I don’t want this anymore.” This is the storage. This is that you drive up here on this little road. This is the main storage area, the outdoor non-climate control storage.
Also, you can’t see it, but there’s a little house right here, a little apartment. I’ll show you pictures of it. It’s an upstairs apartment with an office downstairs and a garage. How did we find this facility? If you’re following me, you know how we did this. This was not a difficult facility to find. I remember I used to live in Jasper, so I drove all the mountains. I know every storage facility in the North Georgia Mountains because I drove a million times trying to drive for storage and get facilities.
I drove and I tried to contact this owner several times. I could never get in contact with this owner, but one of my virtual assistants, Nick, called him up and got us in the door. I’ve been through and drove past this facility quite often. The truth of the matter is I gave Nick my list and then he started calling all these facilities. He’s the one who got the foot in the door. He’s an acquisition specialist on my team and he’s the one that found this facility.
Everybody should be able to see this executive summary. When we put together, what happens with the acquisition specialist is they create a Google Drive folder, and then inside the Google Drive folder, they always have all the information that’s needed for me to decide on the deal or the student, whoever we’re looking for to decide on the deal. He puts everything into a Google Drive folder, and then he also creates an executive summary. We call these the executive summaries, which are everything that’s in the folder in one summary because I don’t have a lot of time to be sitting there and opening up all these folders and stuff anymore.
I have everybody just make a little summary here. I’m going to go through what it looks like. This is just a lot of stuff that we look at whether or not we want to buy the facility. You can see here that there’s this is the little apartment area that I told you about. This is in the main section right here. There’s an apartment up here. We have not rented this apartment out because when Pete goes up to work at this facility, he just stays there. When he goes to Georgia, he basically stays in the apartment. We are going to get to the point where we will rent this thing out.
We’ll probably get $700 or $800 for a very big apartment. It’s a one-bedroom apartment. You walk upstairs, there’s a living room, dining room, and a kitchen, and then there’s also a bedroom, bathroom, and laundry room. It’s quite large. The owner was living in this apartment. This is the office. You can walk into the office and this is where the owner sat and worked every day. He just sat in his office and managed the stink. This is the only facility that the owner had. That’s it. He got up every day, sat in his office, and managed his facility. This is the little garage area.
When we bought this facility, this owner had three storage units, plus the storage facility, and the barn which was all packed with crap. He had all kinds of stuff all over the whole place. He had a lot of stuff. One of the terms of our closing on the facility is that he had to get all his stuff out. We gave him until the end of the year. We closed in August of 2022, towards the end of August. We gave him until the end of the year to just give all his stuff out. He ended up getting all of his stuff out.
The reason that he sold to us is because he had some health problems. He wasn’t doing well. He sold it to us, and that’s why. That is the facility. That’s the main part. This is the climate control building. Remember I said the climate control and here’s what it looks like inside. It’s a very nice climate control unit. That’s available. Here’s the house. You can see there’s that house number. I told you there’s a house on the other property. This is what it looks like. It’s a big nice house with a big garage in the backyard. It’s all fenced in. There was a little pond there. We ended up filling this pond in, just getting rid of everything and then laying down a seed so that the grass would start growing.
A person was living in this house. She had lived in this house for many years and she had paid $400 a month for this house. This is a 2,000-square-foot house. It’s a very big nice house. She took good care of it. We tried to raise her rent and we closed on it, and then she freaked out and ended up moving out. In 2023, she moved out and then we renovated the entire house inside. Not like major renovations, just rental renovations, but we painted it and put in new carpet and whatever else needed to get done like new lights and stuff. This is what we did.
It’s rental-ready. We just finished that. We are now looking for a tenant, and we already have somebody who applied. We’ll be renting this house out for $1,500 a month, minimum. I told Pete, “You should just put $2,000 and see who’d be willing to pay.” It’s going to be anywhere from $1,500 to $2,000 a month. We’ll see who applies because it’s a house that’s on a storage facility property. We’ll see what we end up getting, what type of applicants, and stuff.
There’s such a need for housing now. I don’t think that we’ll have any issues with getting anywhere from $1,500 to $2,000 a month. It cost us about $10,000 to renovate it. We got a handyman to come out. What had happened was that the renter had called and said she was having a leak in one of the bathroom pipes or something. We had this handyman go out to fix the leak while she was living there.
There's such a need for storage housing right now. Share on XHe and Pete got to talking, and the handyman was like, “If she ever moves out or if you ever need any more renovations, let me know and I can do all the renovations.” He’s the one that ended up doing all the renovations. He was a handyman guy. He painted and changed out light fixtures because it was pretty bad looking inside. She’d been there for many years, I don’t think she ever even cleaned or anything. He did all that work and he charged us $10,000. We bought all the materials. We probably paid another couple thousand dollars for the light fixtures, the faucets, and things like that. I would say anywhere from $10,000 to $12,000 is what we spent on renovating it. We did a lot of the inside stuff. We didn’t do a lot of outdoor stuff. We didn’t paint the outside or anything.
This is the piece of land that’s out on the backside. In this picture, you can see a big empty space. It doesn’t look very big, but it’s like an acre. It’s quite a huge space. What Pete did as soon as he closed on the facility was he hired a landscaper, and we have a very good landscaper. He comes out and cleans up all around. He mows and does all kinds of stuff over here. He has his equipment and stuff. He was like, “I can go back there and clear this whole land out for you.” He bush-hogged it and he cleared the whole thing out. It was super nice and clean.
What Pete did is get a gravel company to come out and lay gravel down here. It didn’t even cost that much money, maybe $10,000 at the most. They graded it, made it flat, and then they put gravel down. I would say June, July, and August of 2023 is when all that happened. In September 2023, we have our first two tenants for parking. We can have about twenty spaces here for RV parking. We got two that called up and they said they were looking for parking. We’re charging $75 a lane or something like that.
What we did is we put that parking on the Facebook marketplace and two people messaged us and said they were interested. Our team took care of it and then said, “Go ahead and park wherever you can for now.” We don’t have the actual lanes. I don’t know what we’re going to be doing. I don’t know how Pete’s going to do this. He’s put railroad ties down or what he is going to do. We don’t have anything there yet because we just finished it. He’s going out to figure out how to do that.
We just told the parking people to go park in the corner somewhere out of the way so we can figure out how we’re going to do all the lanes and stuff, but then you could just move your stuff later. Both of them are like, “That’s fine. As long as we could just put this somewhere, it’d be perfect.” I’m telling you, boat and RV parking in this area is a huge need because of those lakes and stuff. That’s going to be good.
That parking area that we made was not included in the numbers as well as the $1,500 for the house. When we talked to the owner, we didn’t know what we were going to be doing with that house, if we were going to keep that lady or get her out. I didn’t even put the numbers for the income into that. The parking as well, we didn’t know if we’d be able to do anything because it would just look like a piece of land. We didn’t even calculate that. It was twenty spaces at $75, we came to $1,500 or something a month. Also, $1,500 for the house. That’s an extra $3,000 a month just by those two things.
A lot of people shy away from buying properties that have houses on them or whatever it is. The truth of the matter is it’s going to be an extra income for us. It’s going to be $3,000 more a month on this property than what we calculated for. We only ran our numbers based on what the owner was making on his tax returns. That was it.
Now you can see that there’s this property here. Also, we’re in the process of cleaning up this barn. This barn is about 400 square feet. Pete’s intention is to rent that space out as well too. We’ll be making money not only off of the parking, the barn, the house, and then this little tiny apartment area over here. We’ll be making money off of that as well too. That’s the long-term play outside of just the storage that we have. The storage has 135 doors in total. It’s not too big, but it’s not too small.
We put inside the executive summary as well as the public data. We went to QPublic.net, pulled the public data, and then added this so we could look at it and see what he’s paying on his taxes and things like that. This is Union County and Blairsville. This is the Deal Analyzer. I’ll go over that in length. I have a couple of questions.
“Do you have folders for all the ones that are getting calls or just listed on a spreadsheet until they want an offer?” No, not the ones getting calls. We only have folders for the ones that they say they want an offer. That’s all we do. “Is there a cap you’re targeting?” Yes, we’re seven cap. Everything we do, we just run our numbers at seven cap. Seven cap is a good number to be at for all your facilities. I would say that’s secondary and tertiary markets, not primary markets. I don’t know primary market cap rates now, but I don’t focus on that area.
Deal Analyzer
Here’s the Deal Analyzer. You can see the numbers here. Don’t get scared about the way the Deal Analyzer works. I try to make it as simple as possible. Remember, this is something that you could pick up. You could use this yourself. When you look at the Deal Analyzer, you can see all these tabs at the bottom. Every single one of these tabs is important. That’s why they’re all there. You have your info tab, which is where you put your inputs. Anything in yellow that you see, you can input it and you could put any numbers that you want, or you can keep it the same. You can see here that property maintenance for us is at $0.15 times C6. We take the purchase price and then we multiply it by $0.15, and that’s how we come up with our property maintenance cost. These are expenses.
You can see in a deal that your expenses are going to be property maintenance. This includes your boots-on-the-ground person and any repairs that need to get done to the facility, and then your staffing is at $7,400. This is the person who’s answering your phones, maybe somebody who’s helping with auction processes. It’s going to cost money for your software and merchant fees. You could see the formula. We get charged 2.9%. That’s where the formula comes from. If you get something cheaper, you could always change the formula if you want it to.
Marketing is another formula that we have right here, but you could always override this. Anything in yellow for expenses, if you think, “No, the station’s expenses are way too high. I could do it cheaper,” then do it cheaper. Change your numbers and do whatever you want, especially if you’re buying smaller facilities. We have a student. His name’s Matt, and he likes to buy smaller facilities that have land to expand on. That’s his thing. If he’s buying 40 units, he could manage that himself or in any way that he wants. It doesn’t have to do it the way that we do it. These types of facilities you could come in and change now.
Also, you can see that you have property tax. There’s the formula. If you have a different tax number that you want, we’re multiplying it by 0.0065. If you’re in a way higher place, then change that number. This is not nationwide where everybody’s at. This is where all of our states are. Southeast is where we’re at. If you happen to buy something in California or Texas, maybe the number is better. The utilities are a formula. You can see that it’s $600 times 6 times C13. That’s by how many units is how he’s doing it.
The insurance is the same way, by C13, how many units, this is the formula that we’re coming at. You could always override it and see if you find something that’s cheaper or more expensive. If you happen to be in Florida or South Texas, insurance may be more expensive. We have a student in Louisiana that’s picking up a $2 million facility. His insurance is $18,000 a year. It’s in Louisiana so he’s got to override that number.
Here’s the input. When we run our numbers, we run it in three different ways. The current is as is, right now, what is it making? The potential is taking it from not full to full. You could see it’s that 46% vacancy. Our goal is to get it to 8% vacancy. The after-updates are like an opportunity. We want to get it to $0.89 a square foot and 8% vacancy. How does that look?
We run our numbers in three different ways, current, potential, and after-updates. You can see here that there’s a current, potential, and after-update valuation. Once you input all your numbers, then you just have your valuation. You could see what your NOI is and what your income is going to be. You can look at all the numbers here, equity, and this kind of stuff. If we’re just going to keep it status quo, and all we’re going to do now is we’re going to just get it full. We’re going to market until we can get it full, then that’s what this is. The valuation after updates is now we’re stabilizing this property. This is what it’s going to look like when it’s stabilized.
Ways To Run Your Numbers
That’s how we run our numbers. On the info tab, if you can see on the left here, this is how you can run your numbers in five different ways. We always do cash offers and owner financing. We have three different owner financing numbers and a bank financing number. You want to make sure that you’re able to put in an offer. When we don’t put one offer in, we put four different offers in. This is how we run our numbers.
On all of our deals, we push creative deal structures, especially on a deal like this. It’s 46% vacant, and it’s only making $35,000 a year. This would be the perfect opportunity for owner financing. We’re way overpaying. I’m buying this at a negative 1 cap rate, even though we’re running our numbers at a 6 cap. That means that I’m going to be coming out of pocket every single month. We’re going to be coming out of pocket to stabilize this facility. That’s where the cashflow sheet comes in.
I just wanted to point out, depending on your scenario, are you going to have to get bank financing? Run your numbers under bank financing. What if the owner says no, like, “I only want to sell this thing with either cash or financing?” You then have the option to run those numbers this way. If you want to do some owner financing, if you can get the owner to sell or finance, you can run your numbers that way as well. We paid cash, but you can run your numbers in any scenario.
Remember, if you have to go and get bank financing, you want to make sure that you just keep an eye on your debt-to-service ratio. This is that line in the bank that says, “I will lend the money to you if you can get to this DSR.” Typically, that DSR is anywhere from 1.2 to 1.3. The SBA loans will go down to 1.5 typically. You want to ask your lender, “What is your debt service ratio? What do you want that number to be so that I can run my numbers based on that as well?” That is where you’re going to add your financing inputs.
Now you can see here that you’ve got your financing inputs. This is where you’re going to be like, “I’m coming up with a whole bunch of different ways to run my numbers. I’m running them with cash and a couple of different financing offers. I’m also running it with bank financing.” Now, you’d be at 30% down and let’s say 8% interest. Your loan would be 5 years over 20. If you paid $1 million for this facility cash, your cash-on-cash is at 20% because you’re paying cash. You’re going to have a high cash-on-cash return. If I went to cash, you could see the numbers here, 20%, 43%, and then if you run your numbers at bank financing, you could see also that your cash-on-cash right here, depending on what your terms are, is where you’re going to be.
These are all numbers based on you looking and stabilizing the deal. The way that it works for the Deal Analyzer is you put your info into the inputs. Anything in yellow is where you’re inputting it. You could put some cleanup costs, any new build costs, and closing costs. We’ve typically run our numbers at 1%, but let’s put $10,000 right here. You can run anywhere from 1% to 3%, depending on if you are using a realtor or not, which is where your closing costs are. Also, property taxes, utilities, and insurance. For all your expenses, you need your market cap rate. Is this a 6 cap, 7 cap? Whatever it is.
What’s your annual income? What is it making? How many units? What’s the total square footage? What’s the vacancy rate? On top of that, you need this to be filled out. Where’s the opportunity? Can you add more units? Can you add more space? Typically, you do not want to mix your income. You can see that this is how much money we’re making on 135 storage units.
We’ll be making money on parking and the house now. You want to separate those. You don’t want to include any other income because what that does is just bring down your price per square foot. You want to be able to look at your price per square foot and say, “I’m making $35,000 on 133 units. It’s 25,000 square feet, 46% vacancy. I know I’m at $0.22 a square foot.” One of the most important numbers on the Deal Analyzer is $0.89. Where do you get this number from?
That’s going to be the most important number. Let’s say you think you can add more units like, “I think I’m going to add twenty more units.” I’m going to say 153, and they’re 10 by 10, so I’m going to add another 2,000 square feet. It’s going to be 24,860, or whatever it was. You can add that. If you’re going to add more units here and add more square footage, then you need to put some CapEx in. It’s going to cost you money to build. Let’s say it’s $40 a square foot, so you do 2,000 times 40 equals 80,000. It’s going to cost me $80,000 to build. That’s how you would add more units.
When you’re looking at deals, that’s what you’re looking at, “What are my opportunities for this facility?” You could add more units, add more square footage, and increase the price by looking at the competition. You would just take your CapEx and it here as well. How much is it going to cost for you to build this 2,000-square-foot building? I’m going to take that out because we’re not there yet.
When you're looking at deals, you're looking at opportunities. Ask yourself, “What are my opportunities for this facility?” Share on XThis is what it looks like as of now. What I’m going to do is I’m going to go to the valuation current, and then I’m going to add the two new incomes that we have. We’ll do both current and potential. I’m going to be adding $18,000 a year for each of those, $1,500 for the house and the parking. I’m going to put $18,000 into the potential but not into the current because he did not have those.
As you can see, all the numbers are on the info tab. This is what it looks like. I’m way overpaying for this facility. I’m looking at the potential of what it can become. I’m looking at what I can do. The goal is to get it to $0.89 a square foot and get it full. On top of that, the goal is to get it to $18,000 for the extra income. Just so everybody knows, this is your first step. The second step is just filling out your unit mix.
Your unit mix is where you’re going to come in and you’re going to put every single size of outdoor, indoor, parking, whatever you have. You put those all in here and you add this up. You don’t put any square footage in for parking. Remember, it screws up the square footage, but you can put in your parking here, so you keep track of it. You don’t really go by square feet on your parking. Parking is per lane.
You can see these are the number of units I have. This is the total square footage. It should add up to your info tab. When you add up all this square footage on your info tab, it’s the same number. That’s like you’re doing checks and balances. You’re also putting in the current price of what is being charged or the owner’s charging. On top of that, you’re doing your competition’s price. Here’s the competition, and that comes from this tab right here.
You put the competition in, the address, has it been claimed by Google? Look at how many of these facilities have not been claimed by Google. These are on the Google business listing. We know that we need to contact these owners as well because they’re not on Google Business, but they are within 8 miles. He went out to 8 miles just to see what it looked like. What is our competition? Is it gated? Does it have an office? What’s the total square footage?
You see how we’re filling all the information out about our competition and doing a deep dive into what our competition looks like. You can see here that these are the unit mixes. These unit sizes come directly from this. Once you add them to this sheet here, it gets put into this right here. That’s what you’re doing. You’re filling this out. It’s automatically done. You have to do it manually, your price and everything. You can go in and start calling the competition, checking their websites, whatever you need to do to see what they’re charging. You can compare your price to what everybody else is charging.
For instance, for a 10 by 10, we’re at 101, and everybody else is anywhere from not $85 to $100. You can see on average, a 10 by 10 is $95.50. It gives you the average per unit based on all the competition and then the average price per square foot. Now, there were no 10 by 12s in the area, but we have 10 by 12s. There’s 10 by 15s and 10 by 20s. There’s only a 10 by 20 that we could get ahold of. There might be others, and they’re charging $250, and we’re also charging $250. 10 by 20s and then 10 by 30s.
This is the $400 for the house, and then these are some other sizes and stuff. You can see now overall we have the average price per square foot, which gets generated right onto this column right here. We don’t put any of this information in, but you can override it if you want to say, “I want to charge more or less.” That’s what the yellows are for, just to let you know that you could always override something if you want to.
This is the after-updates. If you want to add more units, if you say, “I’m going to get in my 2,000 square feet, 10 by 10s. I’m going to charge $150 a month.” You could come in and change that number. You could say like, “I’m going to do ten of these and charge $100 a month or $95.” You could change the number. You could change whatever you need to do. You could look at your numbers that way as well.
These are numbers currently filled. This is your economic occupancy. How many units are filled, and what are they making money off of? This is what it looks like. We’ve filled out the unit mix and the competition. The next step is to fill in our financing terms. What are we willing to pay for this deal based on the numbers that the owner’s given to us? This is how we look at our terms. Are we going to have to get it financed? We need to make sure that the numbers work here. We’re also going to try and get an owner financed.
What do we do? We do 10%, 15%, and 20% down. The more you put down, the less your interest rate is, 3%, 5%, whatever it is that you want to do. You could say 3%, 4%, and 5% is what you could do. If I give you 10% down, I’ll pay 5% interest. If I give you 20% down, I’ll pay 3% interest. These numbers are just whatever. Typically, now we do 5%, 6%, and maybe 7% interest because people want to do that.
If I paid $1 million for this deal and put 10% down at 7% interest, I would have a 136% cash-on-cash return. I’d have a loan of $900,000 and a down payment of $100,000. The interest that the owner would make is $538,000 in 10 years. The total paid and the interest, these two numbers are what we push on the magic letter. The magic letter is the letter that we send out the offer letter. That’s where we spell these terms out.
Let’s just say I paid $5 million for this deal. Now you can see how it turns red. It’s going to tell you that your monthly payment is $35,000. You’re at a negative 35% cash-on-cash return. This is not a good deal. Red is not good. You have to sit there and play around with the numbers essentially to come up with what numbers would work for you. Everybody’s different on their numbers and stuff. Typically, for owner financing, do 10%, 15%, and 20% down. 5%, 6%, and 7% interest are what we do. This is the offer that we would make. We’d say like, “We’ll pay you $1 million in cash.” That’s a 23% cash-on-cash return. If you owner finance and leverage that money, then you’ll get a better cash-on-cash return. If you have to go to the bank and get a loan, it’s a 53% cash-on-cash return.
Remember, this facility is only making $35,000 and I’m paying $1 million for this facility. It’s valued at negative $115,000, you can see that. I’m way overpaying for this facility. I’m betting that I’m going to be able to stabilize this facility. That’s what I’m doing. I know that in the end, I’ll be at $3.3 million when I sell based on trying to get it to $0.89 a square foot and getting the parking done. The parking and the house don’t add a lot, but getting it full because it’s only at 46% vacancy.
You look at the cashflow tab, which is the first top right here is what’s showing you what’s going to go onto the magic letter. The magic letter is where we spill out. These are our offers, our purchase price, our monthly payment, our interest rate, our terms of the loan, our down payment, our total interest, and our net amount to the owner.
This is where we’re saying like, “What monthly payment do you want? Look here. What interest rate are you interested in? Look here. What terms of loan?” Sometimes they want 5 or 3 years, sometimes it’s interest only. Sometimes, it’s fixed interest. These are fixed interests. I’ll show you how you could change it to interest only. This is what you’re going to get for your down payment. Over the course of ten years, you are going to make between $330,000 and $530,000 by financing this deal to us. You’ll make $1.3 million to $1.5 million if you owner finance it.
They get to see all the different terms. We take the valuation which is our cashflow. You can see, depending on what type of deal they take. If it’s cash owner financing, 1, 2, 3, or bank financing, these are going to be your valuation current numbers. When you close on the deal, this is where your numbers are going to be. After you get everything stabilized, this is where your numbers are going to be.
If we had to go get bank financing, you would have to come out of pocket $6,530 every single month. Your cash-on-cash is negative 25%. After you stabilize the property, your cash-on-cash is 53% and you’re making $13,000 a month. You’ll make $23,000 gross, your operating expenses are $3,600, your NOI is $19,673, minus your mortgage payment of $5,855, and the $13,810 is where your income is, which is $53,000.
Remember, we’re just pulling the terms over here. If you switched your terms up and said 40% down and 9% interest whatever you can get, you click on the cashflow, then you could see that it’s changed to 40% cash-on-cash return and your net income has come out a little bit different. That’s how it looks if you’re looking at both your current and your after updates.
The question is, how much are you willing to come out of pocket to buy the property? This is a severely mismanaged facility. The question is would you be willing to buy something like this? This is why we chose the cash. We chose the cash option and I just ended up raising the money and then we just bought it with cash. He wanted $1 million. He did not want to owner finance. You go to a bank or to pay cash. I opted for the cash and just raised the money this way.
We were making $3,000 a month. In the beginning, our expenses were $3,600. We’re coming out of pocket $675 a month. We’re just barely breaking even on this facility. The goal is to make $23,000 a month. Expenses are still the same. They’re not going to change. For $3,600, your NOI is $19,000, and then your net income is $19,673 so it’s a 23.3% cash-on-cash return. That’s how we do it. A bank is not going to finance this because it’s not making the money. I’d either have to do cash or I’d have to get owner financing. He didn’t want to own financing, so I decided to just raise the money myself.
Offer Letter
All these terms flow to the offer letter. Here’s the offer letter. This is the magic letter that you can just print right from the Deal Analyzer, and now it’s showing. It’s a cash offer of $1 million or you can owner finance it and make anywhere from $330,000 to $500,000 if you owner finance. We lay it on the line and just give it to them so they can see exactly what they could be making if they work with us. All terms are negotiable. I schedule a call on Zoom. Let’s discuss this. This is why I do so many Zoom calls. You have at least several Zoom calls a week with owners because we send out so many offers and then they just want to hop on Zoom and talk about it.
This is the magic ladder. Overall, you can see here that you’re inputting all your information. You’re adding your unit mix, your economic occupancy, and your physical occupancy. You’re looking at the competition and doing a competitive analysis. You’re looking at your financing inputs and seeing what you think you can get for financing terms. You’re looking at your cashflow. Overall cashflow is based on your valuation current, your potential income, and then your after-updates income.
These are the steps of the Deal Analyzer. That’s how we came up with the numbers we did for ours. There are a couple of questions here. How far do you go out for the comps? It depends on tertiary markets. You could go out to 10 miles. You could go longer. “What’s the closest comp?” It’s not the distance. You want at least 3, if not 5 comps. If you’re in a primary market, there’s going to be a ridiculous amount of comps. If you’re in a tertiary market, there might not be that many. You want to have 3 to 5 comps.
“When facility shopping, how do you know if your prospective storage site will support the market if there’s a 250-unit 1 mile down the road?” You can check. You want to look at your net it. It’s your net square foot per capita. Honestly, I don’t look at this as much because the truth of the matter is there’s a need for storage, especially in secondary and tertiary markets. There are 400 people in town and we have 60 doors in a town of 400, and we’re full. There are no other storage facilities in the area. You could buy something in a secondary market and have a lot more competition, but you just have to do more work to get the marketing done. It really is that.
There are some areas, I would say like Dallas, the suburbs of bigger areas. These are not secondary markets. These are primary markets. There’s a lot of growth and a lot of stuff going on. You want to be leery of being closer to bigger markets. I push secondary markets that are standalone towns and that they’re growing even if it’s just 1%.
Also, the tertiary markets. There’s not going to be a 250-unit facility being built in a tertiary market. That’s for sure. There is a software called Radius Plus and then you can look to see where all of the buildings are being built. They pull the permits, and then you can see what’s being built in your area if anything is being built in your area. That’s something that you could do.
You come back at some point to discuss why you choose to overpay. That’s just the type of investor I am. Every deal that I’ve ever bought, I’ve always bought a negative 1, negative 2 cap rate. I buy severely mismanaged facilities. The reason is that you can 3X those properties pretty easily. I paid $1 million for that property, and we’re going to sell it at $3 million. I’m not doubling the value of the property. I’m tripling the value of the property.
That’s the types of properties I like. I don’t mind doing a little work on the front end and working hard to stabilize and clean it up. In the back end, you make more money doing that. You will not make those multiples on an income-producing property. Income-producing properties sometimes don’t even do 1X. You make $100,000, $200,000 on the back end, that’s it, but you get some income. You get a little bit of cashflow. That’s basically it. “How far do you go out for the competition?” 3 to 5 comps are good, 5 would be better than 3.
Thank you so much for hanging in there until the end. Now you see the Deal Analyzer. If you are interested in buying the Deal Analyzer, I’m telling you this thing is awesome. All you have to do is go to StacyRossetti.com and then once you get to the website, click on the Deal Analyzer and you can purchase it right there. Also, everything else that you need about me is there. You’ve got the StorageNerds and the coaching program. Everything is right here, the Turnkey Acquisitions or the coaching program. The Deal Analyzers, my podcast, and my course are right here. Anything that you need, just check it all out on the website. I appreciate your time. Take care.
