Equip yourself with the knowledge to make winning self-storage investments. The Step-by-Step Self-Storage Deal Analysis provides a powerful framework for analyzing every aspect of a potential property. Join Stacy Rossetti as she guides you through leveraging the Self-Storage Deal Analysis to maximize your deal profits. In this episode, you’ll learn why deal analysis is crucial for identifying competition in a specific area.Stacy’s comprehensive guide empowers you to make informed decisions with confidence, transforming promising self-storage opportunities into profitable realities.
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Mastering The Deal: Your Step-by-Step Guide To Self-Storage Deal Analysis
If you want to learn how to invest in self-storage, you are in the right place because that’s what I do. I teach people how to invest in self-storage and I’ve been doing it for a while now. I’ve been investing for a while now. We have 16 facilities. I partner with my students as well too. The good handful of students that I’m partnering with is all over the place and I’m like a lot of different states. In fact, I have no idea how many states I’m in but you’re kind of all over the place. I’ve been teaching people how to invest in self-storage now for about four going on five years.
Teaching is my passion. I just happened to teach you how to invest in real estate. That’s what I teach. I’m lucky to know to be able to teach that but investing a real estate since the upturn of 2011 and we did a lot of flipping houses for a long time a different five years. We’ve flipped houses. Doing 100 and got tired of it and decided to just focus on passive income and trying to figure out how to make passive income and also got pregnant at the time.
I got pregnant. Lily just turned eight last week and when we bought our first facility, she was in my tummy. That’s how long we’ve been investing in self-storage. She’s the main reason why we did get into self-storage because I was doing like 10 rehabs at a time. It’s just running around like a crazy person, and as a mom, I was thinking there’s no way I could take care of this baby and I also manage all these facilities.
I started to focus on passive income storage. Luckily, I got into storage investing. All of the commercial real estate out there, storage investing I think is going to be one of the easiest ways to make money. Now, it doesn’t mean that it’s easy. It’s just that it’s one of the easiest wys to make money. Actually, the return is really high on storage. It’s not as good as an industraial warehouse, if you want to make more money, an industrial warehouse is kind of where you want to be but then storage is right after that.
The return is high on storage, but not as good as an industrial warehouse. If you want to make more money, the industrial warehouse is where you want to be. Share on XIn terms of cash on pad for returning your ROI and even cap rate, still storage kind of beats everybody. That is why I’m here today. I was teaching people how to do rehabs for at least five years, maybe four or five years before I started teaching people how to do self-storage. I am a teacher. That’s what I do. I appreciate you guys listening in. I will teach not every Wednesday because there was a while when something came up with technical issues or something happened while I was on vacation or whatever, but most Wednesdays I’m here at 1:00. Every week it’s different.
I’m the type of personality that there’s no way that I would be able to do the same presentation week after week after week. I just mix it up with whatever I feel needs to be taught. Last week, we talked about funding. This week, we’re also going to talk about deal analysis. I’m just leading up to my boot camp which is coming up on May 18th and 19th. I’m going to have a two-day boot camp. I’m opening it up to the public. I typically only teach to students, but a lot of people can’t afford to become students right now, and I totally get that.
I decided to open up my boot camps to the public so that you can have a couple of days of two full days of getting taught. I do boot camps in January and May and then September, but it’s three different topics. It’s finding, funding, and then right. This boot camp in May is funding. It’s two full days of like how did Stacy buy 16 storage facilities and partner with another 10 or 15 people? How is she doing that? How is she raising money? How is she finding money to buy deals? How are her structures for her partnerships and things like that? I know you all ask questions and those questions will be answered in the boot camp.
You will get a deep dive into how those structures work. When you do come across a deal that you want to buy, you don’t have to pass up on it because you don’t know how to buy it. The thing is that commercial real estate is super expensive. Everybody can go out and buy $300,000, $400,000, $500,000 facility, but your ROI and cash-on-cash returns are really not that high on little, tiny deals.
You have to buy a whole bunch of those in order to make money. Then the question is how do you buy a whole bunch of them? Or should I just buy one bigger one? If I want a bigger one, how can I afford it? You get into this cycle. That’s what I’m doing is I’m breaking it down in the boot camp. I own 16 facilities, and we haven’t put a dime of our own money into purchasing any. I am the epitome of no money down, and I do a lot of credential structures.
That’s really what the first day is going to be focusing on is creating deal structures. I’m going to go over that today as you get an idea of what I’m talking about. How do you do that? Of course, I also raise money but I’m always asking people for money and raising money and that’s how I buy a lot of my deals to go to. That is what the two days are going to be about is raising money and creative deal structures and then also structuring your deals.
I have a very good attorney. His name is David. He’s been working with me for years now. He’s going to come into the boot camp, and he’s going to talk about structures as well too. I’m going to look at some of my deals, and really how we structure those. One of the questions I get from my students all the time at Storage Nerds is, “How do I structure this? How am I going to buy this?” We have one student right now, he’s buying the facility in Texas, and it’s a $2.5 million facility. This is his very first facility.
How can you buy a $2.5 million facility as your very first facility? We’re going through that with him right now. David is coming in and helping with that structure and how you find the money to do so. Hopefully, you’ll come to hang out with me on that day. My website is StacyRossetti.com, then Storage Nerds, The Coaching Program. The doors are closed.
The Learning Triad
I do not know when I’m going to be opening the doors to Storage Nerds again because I’m really focusing on trying to help everybody that’s in Storage Nerds to close on deals. Whenever I feel like I can take on some more shootings, I’ll open the doors, but you can get on the waitlist is what you can do. Then also finally, before we get started with Super Simple Self-Storage, this is the triad that I always talk about. This is the learning triad. If you’re new and you do not know anything about self-storage investing and you’re asking yourself, “Where do I find deals? How do I know if they’re good deals? How can I truly manage these things and have it be passive income?” These are the typical questions everybody’s asking.
This course is what’s going to take you through that. I also have the Deal Analyzer. I’m going to go over the Deal Analyzer today and show you how we analyze deals so you just get an idea. That’s one of the biggest questions I get is, “How do I know if it’s a good deal or not?” The truth is that you have to learn how to invest. You have to learn how to run a creative structure.
You have to learn how to run commercial deal analysis. Funding is what you have to learn in order to buy commercial real estate. That is what the deal analyzer does. Then we have the Wednesday training so I told you I’m here at 1:00 every Wednesday. If I’m not here, then just sign up for next Wednesday, it’ll be something completely new and I’ll just talk about it. The Facebook group if you haven’t joined that yet, it’s called Super Simple Self-Storage. Just join that and that’s where you could post out any questions.
If you’re trying to wholesale a deal or whatever it is and there are 12,000 people, 13,000 people in that group and it’s growing. Every week, it’s growing. It’s a good place for you to learn and ask questions. I’m in there and I’m answering everybody all the time. If you have any questions, this is my triad. This is what I suggested that you purchase if you’re interested in learning, you can just go to StacyRossetti.com and you can buy all that. I didn’t write that down.
I always forget to say this, but at the end of the session, you always get a feedback form. If you fill out this feedback form, you will get emailed $1,000 off the course. You just have to fill in the feedback format and you’ll get the offer. I love getting the feedback. Sometimes I get like, “Stacy was great. I learn so much,” and sometimes it was like, “You suck at teaching. Why are you doing this?” Any feedback is good feedback because I do take it to heart and try to improve on it.
Welcome. Thank you for coming, and then somebody says, “Will the boot camp include wholesaling?” No. Boot camp is not going to include wholesaling. That was in the January boot camp. Funding is so the way the boot camp is. Saturday is raising money. It’s all about raising money, talking to people, private money lenders. I’ll go through the deal analyzer because you have to be able to know if it’s a good deal and know how to work creative deal structures. You’ll be working the deal analyzer the entire time and then Saturday is like creative deal structures.
Then also partnerships and syndications and things like that. That’s creative deals structure. When I say creative deal structures, I include partnerships, syndications owner financing, wraps, or whatever. I did on like the last one I closed, I didn’t miss a loan assumption plus a wrap-around mortgage all in the same bill. All right, so it’s like, “What the heck did you just say Stacy?” I’ll go through and I’ll explain how I made the assumption and how I did wrap around the mortgage because I have two mortgages on that property. How did we do that?
Stuff like that is what you can learn at the boot camp. The thing is that the property I bought is $2.5 million worth over $5 million. If I did not know how to do that structure I would have never ever been able to purchase that and I didn’t put a dime of my own money into any of that. I bought a $2.5 million facility. I raised enough money for the down payment of that property and I got one owner I assumed the loan of the first owner and then I got the second owner to sell at finance.
That is a lot of creative deal structures, right? That’s a lot going on there and I didn’t put any money into that deal. How do you do stuff like that? That’s what the boot camp is going to be about. I’m going to pull this up. It worked. I was wondering if that’s going to work. Everybody can see the Deal Analyzer now. Just make sure that you all can see that. Everybody should be able to see what they’ll analyze. What I want to do today is go over what my Deal Analyzer looks like.
You don’t look at it as like, “Stacy’s trying to pitch to you her deal analyzer.” That is not what I mean. What I’m meaning to show you is that when you analyze a deal, these are the things that you need to know and understand. These are the things that you need to be looking at when you analyze a deal. That is what I’m going to go over because I get a lot of questions all the time, which is like what’s the information that you need in order to run deal analysis? What’s a quick way to learn deal analysis? Actually, I get like I just got an email right before this meeting and the email was, “Will you please be my cosigner on a loan?”
I don’t know who you are. It was like some rain to me now. I get questions about raising money and deal analysis every day. Is this a good deal and somebody will just forward it to me. Well, I’m like, I can’t help this person. What I do if somebody sends you that, is just say look just set up a consult with me and I’ll go through this deal and I’ll show you or you can always watch all my sessions or the deal analyzer of course, and use that to learn numbers. That’s what I tell everybody but I do get that stuff every day.
I figured I would go through what are the things that you need right now if you’re looking on Crexi, if you’re talking to an owner, what are the things that you need to get from the broker or from the owner in order to run deal analysis? These are the things and everything that you’re seeing in yellow on this deal analyzer is what you’re going to need. You can see here, what this is like for us on our deal analyzer. This is our input. This is where we’re putting all the information. You can see it here in yellow. You have the market cap rate. All right.
This is a question that I get all the time what is the market cap rate for the area? This is what it looks like. If you followed me before, you know this. Secondary, tertiary. The primary cap rate is going to be like a city or a metropolitan like Nashville or Orlando or whatever. Your cap rates are going to be lower there. Typically your cap rate is a cap rate explanation. The cowboy honestly is super biased. I mean people could be in a primary market and what a very low cap rate, but the truth is what is the market calling?
Typically for primary, we’re at like anywhere from 4% to 6% and a very very big metropolitan area like maybe New York City. You see very low cap rates but like in Tallahassee or like in a bigger primary market, you’ll see a higher cap rate. That’s just because of the buying power. That’s really what it is. It’s like who is willing to pay more for certain areas and the lower your cap rate, the higher your purchase price is going to be. It’s better for the seller to have a low cap rate.
If you want to lose you possibly can but it’s better for the buyer to have a high cap rate. It’s really purchasing power. Then in your secondary market, you’re typically like a 6% to 7% cap rate. Your secondary markets are going to be markets that are standalone cities in your state like Augusta that don’t have really big primary markets like Tallahassee has a primary market is a very very small primary market and only like CubeSmart are in Tallahassee. CubeSmart will go into like a bigger secondary market whereas a U-Haul or Public Storage may not. They have bigger demands for the City.
Then 7 plus for the tertiary market. Tertiary is like a country. It’s like everywhere outside of secondary markets for primary markets. This is like where you’re seeing cap rates, we run all of our numbers as you can see here at a seven cap. That’s where we run us. That is a very good number to be using right now. That’s a fair number. Now, back in the day when I started teaching, I was buying stuff like 8, 10, 12 caps. Okay, but I’d be mostly tertiary markets. You cannot find deals this way.
Like I have one student that’s like I want to have double-digit cap rates, Stacy. You teach double-digit cap rates and I’m like the market does not call for double-digit cap rates right now. If you’re looking for a double-digit cap rate then essentially what’s going to happen is you’re looking for like the ultimate diamond in the rough. They’re really just not out there anymore. I bought them all we all bought them all. Don’t limit yourself to I want to have a double-digit cap rate or an eight cap or a 10 cap or 9 cap.
What happens is that there are really good deals, especially if you understand critical structures because like if you run your numbers at an eight cap for bank financing, you will have a different outcome at a seven cap was like creative deal structure some sort of creative deal industrial. You really shoot yourself in the foot if you just like I’m only thinking about cap rates. I highly recommend that you really look at the full picture.
With the deal analyzer you can see all these tabs at the bottom, they really kind of give you the full picture of how a deal looks like and that’s what you want to do is don’t think that cap rate is super important because it’s really not. It’s just super biased is what it is. What I would purchase for something is my wrist level from a 1 to a 10 is like a 9 or 10. My cap rates are going to be different and if somebody’s risk level is like a five. Like no, I’m not very risky. So their cap rate would be totally different.
Don't think that cap rate is super important because it's not. It's just super biased. Share on XThat means that like if you are talking to somebody and their risk level is not the same as yours and they’re telling you that that deal sucks. I guess that you’re shooting yourself in the foot because you may have a different risk level. You may have different parameters and stuff. Does that make sense? Cap rates until make sure I’m going over that. Then also you could see here. There’s the annual income. This is actually one of the deals that we purchased. You can see the numbers on it.
The annual income, the cap rate, the annual income, the number of units, and the square footage. If you do not know what your square footage is, you could just go into Google and you just measure it. You just have to right-click and then you could just measure the square footage. It gives you a pretty close approximation of how big that building is. You can also ask the owner. Like how big is your facility? It’s like 79 or 7600 square feet or whatever. Then they kind of have an idea.
Then once you get into the unit next tab, which is right here, that’s where you’re going to list out all the units and you’ll get an exact number of like how much square footage you have. Then you have a vacancy so like this is 99% full right? Now, the way that we look at our deals. You can see here current, potential, and after updates. We value our property in three different ways. We look at it as is right now what is the value of this property? Okay.
Income-Producing Property
Then we look at like we look at the potential. As you can see there is potential. The only thing that changes is it goes from 99% vacancies to 8% vacancies. This facility was an abandoned storage facility when we buy. There was nobody there. We put 99% vacancy into the numbers so that we can see what the value of this property is as is. Then if we take it to 8%, this is the potential of the property. This right here is really for mismanaged facilities. That’s like a lot of mismanaged. Whereas after updates for us is income produced, this is what it’s going to look like when it’s an income-producing property.
You can see. Now we’re evaluating and we try to in our daily analyzer. We keep everything the same colors. We’ve got blues. We got reds and we got oranges. Then down here as well, we got blue, red, and oranges so that you can evaluate the property based off of these three different ways of looking at the deal because we buy a lot of mismanaged facilities. We really don’t buy income-producing properties.
We stabilize our properties and then we sell them to somebody that wants a cash-flowing income-producing property. That’s kind of how we do it. You can also be interested in income-producing properties. There’s no right or wrong way. That’s just kind of how we do it. That’s why we have to have this potential here because the potential for us is like, okay if we did nothing except just fill this property up with 10, it’s what would the value of that property, right? Then here you can see the after updates is the opportunity, right?
This is where like what can we do? Here you can see in yellow you can change the number of units. You can change the square footage. You can change the price per square foot and you can change the vacancy. All right. You can increase the vacancy, increase the number of tenants, add more units, and add more square footage. You can also increase the price of all the different ways that’s all the opportunities to make this value of what the potential of this property is.
Then we have here kind of these are all the expenses like that you’re going to be having that aren’t going to really ever change. Okay. You’re going to have like any cleanout or capex. If we’re going to add more units, then you can add more units and you can also put the capex. The capex is going to be what the cost in order to add those units. Then you also have your closing costs. It’s going to cost us this much money to close this deal. All right, so you can calculate like 1%, 2%, 3%.
If you’re going to do an SBA loan closing costs are super high, if you’re going to go to the owner and close it yourself, closing is possibly very low. Okay, so that kind of stuff. That number could range, could be different. Then you have property taxes. Then you have utilities and insurance. Now on our deal analyzer, these three right here are formulas. Right, but you can anything in yellow on our deal analyzer you can override. Okay, you’d be like, “Stacy, this number sucks.
Like I’m going to go and put my own number,” but we do create formulas for those just in case but sometimes you just don’t know what the property taxes are going to be. The property tax is based off of the purchase price. Then what we did is we took the average millage rate throughout the entire country and we put that into the formulas what we did. Obviously, property taxes in California, Texas or New York, and in Illinois, maybe higher than in Mississippi or Alabama.
If you want to override that and change it you could do that, but you do need to know these things, right? Now you can see we’ve got the cap rate. We’ve got the income. Got the vacancy. Got the units and square footage. We’ve got the taxes and we’ve got insurance. All right. These are the main things right here that you’re going to need in order to run a deal analysis. Then you’re going to start looking at what your opportunities going to be. All right. That’s what the next page, the next couple of tabs over and I’m going to show you or going to help you to create your opportunity.
If you know all this stuff right here, you can really figure out what your income is right now. What is not going to be the evaluation is right now. Currently, what is your evaluation? This is the unit mix tab. It’s kind of small and I do not know how to make it bigger so I apologize. At least you kind of get the gist of what it looks like here. This right here, this is where you’re putting your unit mix like your actual unit mix. I have 10 10x10s and 20 10x20s and 8 10×15 and like 4 5x10s. Okay. This is kind of what you’re doing.
You’re just putting these all right in here. You get to choose if it’s outside or inside like I’m in control or whatever you can choose that. You put your square footage in based off a 10×10 is 100 or whatever it is. Then you get to put in the number of units. Okay. Now as you can see as you list all these down, it creates the total number, right? We have 66 doors, 7600 square feet based on the unit. Getting the unit next from the owner is more important than asking how many units do you have. What’s your total square footage?
If you could just say, look, if you could just give me a list of your unit. Whatever that is. I can figure out what the number of units is in total square footage rather than just give me your general number and what you think it is. Now obviously, they have a general number. We bought a facility with the owner like she told us that he had 115 units. Then when we actually did the walk-through and like looked at the store’s facility, there was 121 doors. Like the owner didn’t even know what he had right? You can’t trust the owner.
You can trust the list from the deal analysis, from the unit mix and then you could just put it in there whether or not you use my deal analyzer. Whoever’s doing the analyzer. All right. This is it. Then you want to put the price that they’re charging. All right, what are they charging currently? You can see it currently? What are they charging? Then you want to figure out what your competition is charging. Okay, so you can see here. This is where you’re going to get these numbers.
You can't trust the owner. You can trust the list from the deal analysis. Share on XCompetitive Analysis
Now you need to do the second most important thing in running deal analysis which is a competitive analysis. Okay. That’s what you have to do. You have to look at your competition. Students will come, they’ll fill out the info page but they won’t fill out the unit mix or the competition and they’re like, I don’t know if it’s a good dealer or not because I don’t know what the competition looks like. I don’t know what the true unit mix is. These two are right here. This unit mix in this competition tab are really kind of the two most important parts of your deal analysis because you need to know what your opportunity is.
The only way that you have the opportunity and to know the opportunities, you’ve actually do a competitive analysis. Okay. This is what we do for our competitive analysis. I’ll come back to this here in just a minute. This is what our competitive analysis looks like. This sheet is just a deal analyzer. That’s all. I mean, it’s hard. It’s just an Excel spreadsheet. That’s all it is. You can see here that we have like eight competitors and these are all within you can see like eight miles. Okay. There’s eight competitors within eight miles.
All their information about the competitor is all right here as well too. What their phone number website if they’re full or not, you get a call and ask that which is you should do. Then their address, have they claimed the business listing? All right. It’s very important information. Now, if you’re competitors are on Google or not, right? Is the facility gated? Is there an office? What’s the total square footage? Now, the reason that you’re going to want to know what the total square footage of your competitors is, is because you need to know what your net capita per square foot is, right?
Do you want to know if is there too much storage in the area? Right? You have to add all this up right here so that you can see if there’s too much storage in storage. It’s like the total storage divided by the population. All right, that’s called your net capita per square foot. On top of that, then you have your units. This for us is just pulled from the unit mix tab. Wherever you put your information in 10x10s, 10x20s, 10x30s, this comes over and then there you can just write it down. You can call all the competitors.
The best way is just to call the competitors and ask them if they have any availability or not. You can ask the prices and just you get that. Another way, you can always look online. Really, the best way is to call because calling really is going to get you the most accurate number. That’s what they’re actually proposing because sometimes they have a website price. We have like a ridiculous. We’ve got a website. We’ve got our standard or management rate or spare foot rate, our promo rate.
Calling and seeing what you can actually do is the best way to get first. Okay, then you can see for each one of the units, you get the average per unit and the average per square foot. All this information for us is calculated on the unit mix tab. That’s how it is. Now you can see here for the competition, you can see this right here. Which is the average price in the area is 60 cents a square foot. Okay, that’s what the competition is charging based off of what you’ve done your competitive analysis for.
Now you can see here on the deal analysis, this is the 60 cents right there. Okay. We’ve taken that number. We’ve done our competitive analysis. We put it right into the info page so that we can actually run the numbers. Okay. Let me see here. The purchase price we have not entered in yet. We cannot put the purchase price on this tab. Where we put the purchase price in that is under the financing inputs. All right. Now the next step after you fill out your unit mix tab, you have to figure out your financing inputs.
That’s where this comes in is trying to figure out how you’re going to pay for the deal for what your purchase price is. The way that we do that is we come up with like what are the most important parts of your financing terms. Okay. What you’re going to want to know is this right here. You could see. You’re going to want to know your purchase price. The down payment. The interest rate. Is an interest-only loan, yes or no? Your balloon and the length of your amateurization. You can see this is where you’re putting your inputs in yellow.
There’s like a gazillion different ways to run numbers on this type of calculator. These are really just five different calculators. Right, so you have your cash offer and then you’ve got three creative deal structures and then you’ve also got your bank financing structure. Then basically, these are all calculators, but really just the same thing. All right, even though it says owner financing or whatever. I chose four different ways to run numbers. Okay. Now the way that we run our numbers is we always put at least four offers in at the same time.
You can see here that we’re putting in a cash offer. Our cash offer is the same as our financing offers typically is where they’re at. This is where we’re looking at what our cash-on-cash return is going to be and we run our numbers at 10% cash-on-cash return. If we pay for this, what is the cash-on-cash going to be? We wanted to be double digits or higher. We put our offers in at 10% and try to get them as high as we possibly can for the purchase price. Remember, it’s all just negotiation.
You’re trying to negotiate the deal trying to get the best price but at the same time when you give something like this to the owners, there’s just an awareness. You’re making the owners aware that there are different ways to purchase a deal not just getting one offer. Then that’s it. All right, because I was saying most owners that we talked to, they’re looking for like one offer. They’re just looking for this offer right here. We want to let them know and show them that they can sell their property and a whole bunch to of different ways not just the one.
That’s what this is. You’re getting their wheels turning. Okay. You can see here when we look at our deals, we’re typically looking at cash on cash and the net profit is what we’re looking at when we stabilize this property. These are the stabilization numbers. It’s what this is. You can see here that on this property if we offer $150,000 cash based on the numbers that are in the info tab based on those numbers, we would be at a 20% cash-on-cash return. We would make this much money after our work. That’s Cash. There’s no more.
We make this much on an annual basis. Now if we made three owner financing offers, just based off of how much money can we put down, right? We can put 10% down, 15%, 20% down. This number is shown right here. If I put a 10% down of $150,000 that’s $15,000. If I put 15% down or 20% down, that’s what it is. I always tell my students to just pick a number that you can afford here. What can you afford? Or if you bring somebody into a partner, what can both of you afford together?
Pick a number you can afford alone or together if you bring somebody in as a partner. Share on XI talked to one of my students and he’s in the process of trying to get a facility under contract in Tennessee. He’s like, “I could come up with like 300 Grand,” it’s like, okay, so then put that as your down payment anywhere like start at 200 and work your way up to Sweden and then run your numbers based on that or what you could do is you can ask the owner. Ask the owner how much money do they want to get on a monthly basis. This is very good. What are you making on a non-free basis or what are you comfortable making on a monthly basis?
I would just like to know what that is. They’ll tell you like we have one guy right now we’re working through and he’s like, “I need $7500 a month. That’s what I need. I need $7500.” Just like a peak rate. That is like the perfect starting place, right? We’re going to work with $7500. What do you want to know what the months of the payment is? It’s right here. This is what I’m going to be paying you every single month for this deal. This looks like something that would be okay for you, this number is here.
Now, what’s the number that works that we can relearn our numbers? Then at the end of the session, you could see that they have the balloon. This is what they’re making on their balloon. The balloon is just final. It’s the end of the payment. It’s the final payment. Okay. You can see here that we did a 20-year balloon, the 20-year amateurization on every single one of these. Three years, five years. There’s one thing I was talking to one of my students yesterday I was like he offered like 10 years over 20 years so the owner was like I don’t know.
I’m like if he’s open to owning a financing, what is he comfortable with the length of the term? Maybe once every three years. Just asking for three years. I stored out at 10 and then worked my way down three. That’s what I do. I’ve got deals that are like actually 12 years, 10 years, 7 years, 5 years, and 3 years just because like I’m negotiating and working my way down to those numbers. The owner may be okay with seller financing for two years or three years. You know what I’m saying? Maybe you have to figure that out.
You have to ask the owner, what are they comfortable with the balloon. Because 10 years might scare them off. Then finally you have the interest rate. I’m going to tell you most owners do not care about the industry. They did not care. They care about what the monthly payment is. They care about the balloon payments more so than what the interest rates are, but some like I’ve seen investors who are selling their properties, care about interest rates. Right, that’s the only ones that really care.
Most people just care about like how much longer on a monthly basis or how long am I going to have to do this for. I always start out like the lowest industries. I have never paid any more than like 5% interest for any of my guests ever. I start at 3% and work my way up to 5% and that’s it. That’s kind of how I do it because most owners. They really don’t care about that interest rate. Then a lot of times, if this mortgage is too high say, “Look, I can pay more money if you lower the interest rate.”
They’ll be okay with that because they want their monthly payment. It’s kind of like you’re creating these win-win situations like a give-and-take. Unless you understand that you’re going to be asking and negotiating all of these terms as you’re going through the process, you’re negotiating all these terms and maybe one of these terms triggers whether or not you’re going to be able to get that deal. If you don’t ask for that number, you don’t make an offer showing those numbers you could lose that deal.
That is why we spell this out and we make sure that when we make our offer we are showing this information from here up, all this information is everything that the owners going to want to know or see on any do. This is a bank or private investing and you can see here that we have interest only right? You can switch to terms from fixed interest to interest only because if you have private land that’s going to give you 150 Grand. You’re going to run your numbers differently from where an owner is going to sell a fine institute.
That’s how we have that and so these are the terms that we put in 150,000, 1% interest, it’s a 1% down payment, 10% interest, and then five years. We will sell this property or do it if we want. All right. We’re running our numbers. This is for private financing is what it is. All right, and this is what our mortgage is. In the end, this is a property that we actually buy we bought. We bought it for this. You got a $150, 000 from somebody. Then we paid the owners $150,000 and it was an interest-only loan from the private money lender at 10% interest and they’re giving us five years for this too.
You can see that our cash-on-cash return, there’s 378% because we didn’t put any money in the mail. We got 100% funded for $150,000 and I just got out of $150,000 or something. That’s why the cash on cash is so high. You would not be able to know what the numbers are if you couldn’t run calculations and look at the numbers. Then finally, let me just erase all this, and then you can also on the deal analyzer, let me see. You can see here that you can look at your cash flow.
Okay, so you could see this is what you’re showing the owner. This is the information that the owners want to see, but the main thing I wanted to show you was the cash flow. If I pay in cash, right you could see that the income when I bought it was $83 a month. The operating expenses are 1539. The NOI is a -1456. Then in that monthly income is the -1456 right, so currently. If I went and got bank financing, this is what the numbers would look like. Just kind of showing you what your cash flow is going to be and then this is as is, right?
This is going to be like after you increase the rates. Okay, so your cash right here shows that it could make $4,195. The expenses are going to be 1530 and then you’re NOI comes out to 2655 and then minus any mortgage. There’s no mortgage so that means I’ll be making this much money if I paid cash for the deal now. I did the bank financing which is really the private lender. You can see here that same income, same expense in a Y and then you could see my mortgage is 1237 a month.
Then I minus that mortgage from my income to make my net income of $1,400 a month and the cash on cash is 378. It shows you kind of the cash flow of what it does based on your inputs. Then also finally I wanted to show you that you could look at your valuation. If I looked at the valuation of the opportunity, this is going to show you your whole evaluation so you can see here that you have the number of units and then you have the rent per unit. All capitalized.
If you were going to be able to afford a property management fee, you put it right in there. I’ve purchased it 153 that’s $3,000 for like just startup expenses or whatever. Then the valuation comes out to 455, 000. I have 302, 000 so I bought it 450, 000 and my analysis is 31, 000, and my debt-to-service ratio is 215. If I can make any other income, I could put it here as well. There’s like expansion or if there was like a sign or an apartment or whatever it is. I put that right there. Then you could see that I make $54,000, right?
The vacancy is a minus 4,000 for the vacancy. The expenses are here, right? We didn’t talk about expenses but your expenses are going to be insurance, property taxes, maintenance, utilities, staffing, a property management fees you can afford it. Software, marketing, and the mortgage payment. If those expenses come to $18,000, so 53,000 minus 18,000 is in a Y of 31,000 to show you. This is if you have a mortgage. You can see here that my mortgage payment is $14,000 a year.
Seller Financing Offer
Now my net after my mortgage is going to be the 17,000. That’s what I’m making on this property per year. Then once you look at this, you can look at your evaluation current. You can look at the valuation potential. You can look at your the valuation after update. All three of them you can look at and you can see if there’s any difference from current to after updates. Then finally we have the seller financing offer, this is the seller financing letter. This is the owner financing letter that we sent out as you can see the table where we run the numbers is right here. Okay.
This is our cash offer, owner financing actually we do cash offers in three seller financing offers is what we do just really is any offer. The cash offers typically if you have to go to a bank you get a bank them, right? That’s the same number which was really buying with cash. This is like a little letter that goes out and then we just sign it and date it. We just sent this right out from her Deal Analyzer, but this is the letter that you should be using. This is like you are making four different offers.
Making a cash offer and a couple of creative dose search offers. You’re making a bank financing offer and then a couple of creative search offers or whatever it is that you want to make that’s the offers. This is what gets your wheels turning on your own. This is why they’re willing to talk to you because like, “Yeah, there’s a couple of different ways so we could do this,” and that’s basically what the letter says. It’s like, “I’m just sending this over because there are several ways to buy this facility not just one way.
If you’re willing to talk to us and explore those, like set a Zoom meeting and let’s talk about it.” This letter we send out every week and we have like at least three to five owner meetings per week just because of this of the way that we send this out. I highly recommend that even if you’re not using my deal analyzer, this is what you should be doing taking several offers at the same time just to get the wheels turning on. That is the deal analyzer in a nutshell. This is going over numbers.
Me going over numbers and showing you all the things that you’re going to need in order to run deal analysis on your own on your facility. Okay. Any questions on the Deal Analyzer or any thoughts about putting them into the chat? Let’s see, “What a great tool. Thank you. I’m Michelle. Our brokers are required to submit offers to owners similar to real estate agents, the same thing.” A broker and an agent are the same thing. Yes, they’re required. If you’re going through the correct seats to offer in, they have to by law give you the offer to the owner. Now, do they? I don’t know. That’s one of the main reasons I go directly to owners.
I know there are a lot of realtors who are just like, “I don’t like that offer.” They’re not that offer. They don’t even send it over by law they’re supposed to send an offer. All right, and then, let’s see. How do you set an offer for those? SBA rates are so high at 10% to 12% which makes it hard to give a decent price on the facility with 50% vacancy. SBA rates are not 10% to 12%. If you’re getting 10% to 12%, then you’re getting a variable rate right now.
That means that you’re not actually talking to lenders that will give you a fixed rate because my students are getting fixed rates for SBA right now. All right, and then Leslie is posting out her calendar so that you can get her help for the deal analysis, which was kind of what I’m supposed to be doing here. Are you taking over my webinar now? Would you like to come here and teach, Leslie? Please come and teach all love for that. Thank you. When you purchase the facility, do you stay with their software or use your own? We use storage.
It doesn’t matter what software they use. We used to work internally and you just need to be doing a lot of demos on the software right now because there’s a ridiculous amount of software and they’re all doing the basic functions. The truth is that they all are not equal. Just take the one that’s best for you. That’s it. Again, we’re back to square one. We’re back to finish. I think that’s it for the day. If you guys have any other questions, you can always email or just go email questions at StacyRossetti.com. That’s it. I appreciate you guys hanging out for the day. I’ll see you soon. Take care.
Important Links
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