You have different options to finance the facility storage you want to invest in. You can pay it in cash, owner finance, or bank finance. But why do most investors choose owner financing? In this episode, the host, Stacy Rosetti, shares how she moves forward through buying self-storage, doing owner-financing, and navigating the Deal Analyzer to help her make money! She also discussed that you might not essentially need a broker to help you with making the deal. Tune in to this episode now and learn how you can analyze the deals on your own!
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Owner Financing For Self-Storage Facilities
I teach people how to invest in self-storage, and we also invest in self-storage ourselves. My husband, my daughter, Lilian, and I live in an RV and travel full-time. We have been doing this for a while. We are in Colorado now. I’m getting over COVID, so FYI. My voice is still a little bit raspy. Please excuse that. We got COVID when we were in Montana for the first two weeks.
I’m not sure if we got COVID from my husband flying from Atlanta to Montana because my husband flew to Atlanta to check on two facilities that we were looking at buying. One of them we are closing on. It’s in the North Georgia Mountains, and the other one that we are closing on is in Florida. We decided to terminate the one in Florida. It’s too complicated. Is there anybody that’s living here that lives in the Panhandle of Florida? If you live in the Panhandle of Florida, this would be a very good facility for you. It’s one that is difficult to make to go virtual. It’s hard because you have to be there to manage that facility because of the way it’s set up.
If anybody wants a facility, you have to be there to manage it. That’s the only thing. You have to live right there. The owner comes in every day and manages it because you have to be there to manage it. My husband and I decided that we don’t want them to buy a facility like that because we buy storage facilities for passive income. Getting up and going into a facility and managing it or having somebody there to manage it because you would have to hire. You would be there seven days a week. There’s somebody that’s their part-time like three days a week, so he can go and do his thing or whatever. He has to be there five days a week.
You would have to hire two operations people to be there. It would be Monday through Friday, and then you would still have somebody for the weekends coming out. It’s too much money to hire everybody and be. The numbers weren’t working out. If you are living in the Panhandle of Florida, if you are living in the Destin area or near that area, this is a great storage facility.
We terminated that facility, and we are not going to be doing that anymore. We are not going to be working on that one but the other one that we are closing on, we are going to buy that. My husband went and said, “This is a good facility. Yes.” He gave me a thumbs up on that one. He went and spent a couple of days there. Getting everything ready to close.
He then flew back to Montana, where we were, my daughter and me, and he got COVID by flying back and on the airplane. Everybody got sick. We were in Bozeman. We were sick the whole week. We didn’t see Bozeman at all. I heard a lot of good things about Bozeman. If anybody has ever been there, I heard very good things about it. The next week, we had to travel to Custer, and we were sick the whole week there.
What’s cool is that the RV park that we stayed at was right in front of Crazy Horse. We got to see Crazy Horse but we didn’t go and see inside or go to the memorial or anything like that. We were in South Dakota years ago. We saw Mount Rushmore and all the touristy stuff but I wanted to spend some time in Custer. If you have not been to Custer State Park, it is the most beautiful park ever. I highly recommend it. You have to put this on your bucket list.
We were sick the whole week, but now finally, I am rested and feeling very good. A little bit of my throat was super raspy. I apologize for that. We are still moving forward with buying that facility in the North Georgia Mountains. I’m very excited about it. We are putting it into our fund. We have a fund it’s called Self-Storage Fund of America. That’s the very first deal that we are buying in the fund. I’m excited about that.
If anybody wants a facility, you have to be there to manage it.
We have already raised enough money to purchase it, so we are going to be buying that. It’s a very good cash-on-cash return. It’s a 17% to 19% cash-on-cash return because we are buying it for cash. If we refi it out later, it gets up to 40% cash-on-cash return. It’s a very good deal. I’m excited about it. All we have to do is buy it. Maybe clean it up a little bit because the owner has been there for quite a while and has a lot of stuff everywhere.
We will raise the rates. It’s supposed to be at market rates. He hasn’t raised the rates since before COVID. We will take a $1 million property and make it into a $3 million to $3.5 million property by raising the rates. I called that rip the Band-Aid. I’m excited about that, and we are going to close here and get that thing rocking and rolling.
The cool thing too is that facility has an apartment that comes with it. We are going to get that apartment cleaned up, and then our boots on the ground are going to stay there for a week or two, and he’s going to be the person that cleans everything up and gets everything set up for us. We live in an RV, so we can’t do all that.
We are going to stick our boots on the ground person in the apartment, and then he will be able to live there and clean everything up at the same time. Maybe later down the road, we will rent it out or he could stay there. I’m not sure. We will figure it out. That’s our plan. We also have two other storage facilities in Georgia that we are putting under contract for the fund, and we are working on that right now, so I’m excited about those as well, too. A lot of good things are happening for us. We own eleven storage facilities. We are about to purchase our twelfth. We are also considering selling some of our storage facilities. We are going to be selling them as a portfolio.
What we do is we have facilities in the Atlanta market, the South Georgia market, the Florida market, and then also up in the North Georgia market. We are going to keep North Georgia. We are keeping South Georgia and Florida but are thinking about selling our Atlanta property, so there are five of them as a portfolio.
I have not sold any of my properties yet. I have not been through that process. I have one student that who bought a $3 million property. There were three storage facilities, and she bought them. It was 630 units, and she bought it for $3 million. A couple of other investors and I came in and partnered with her. She took that facility from 50% to 60% full to 85% to 90% full. That’s what she has been doing.
She did a fantastic job raising the rates, getting the bad tenants out, and fixing stuff that needed to be broken and stuff. She was thinking, “Maybe I should sell it, so I could 1031 exchange or sell it. Roll that money into some other deals that are coming up.” Especially in the next years because hopefully, we will have some lower cap rates, lower prices, and some higher cap rates and stuff.
She has been talking to brokerages to list her three facilities. She picked those 630 units up for $2.9 million. Both of the brokerages came in at $7 million to list. Literally, in ten months, she’s taken that from a $3 million property to a $7 million property. It was a mismanaged facility but that’s what you can do if you can figure out how to come up with a lot of money.
A Different Type Of Buyer Pool
I said, “I should be selling some of my facilities as a portfolio.” They told us that when you sell your facilities as portfolios, then you can make more money on your deals because there’s a different type of buyer pool that comes in and buys your facilities or portfolios. People think that if you sell them one-off, you will make more money. The truth is that if you have many portfolios, then you can sell those for an even higher price.
Another thing that was cool that I liked that she learned was that she said that when you have a portfolio, you have these types of buyers that come in. One of the buyers, for instance, that’s looking at her facility is a storage franchise. They are looking at her facility to purchase it. They are a little bit on the lower end. They own 40 different storage facilities in 11 different states.
Those types of buyers are not going to do what we do. What you and I do, is we go and talk to owners and get them to sell us their facility without a realtor involved. We are the owner to own, “Let me purchase your property.” Most people in the real estate industry think you have to have a broker in the middle to do your deal, whether on the residential or commercial side. The truth of the matter is that you don’t need a broker to broker a deal. You can go directly to the owner and purchase it. For everybody here, that’s new, that’s what I teach. Go directly to the owner and make an offer.
The truth is that all the ones that are out there trying to buy up facilities that are bigger players, they are not going to go to the owner. They are going to come to somebody like us that went to the owner first, stabilize the property, and then is it going to sell it. These types of owners too, only want to buy secondary market facilities.
In the storage investing world, you have primary, secondary, and tertiary markets. The primary market you already know. It’s Public Storage, CubeSmart, and all this stuff. We are the mom-and-pops. We are going to be playing in either the secondary market or the tertiary market, and tertiary means country. The little tiny cities and stuff.
What Marcus & Millichap told us was that the primary markets, we all know, is over-saturated. Bigger players have come in and taken over. There’s no way for us little people to come in. The great thing is that there’s no way for even secondary market players to get into the primary market. Even secondary market players are having a hard time finding good deals.
Her facility ran the numbers and came up with a 6.25% cap rate, and she’s in a secondary market. That shows me too that, even in secondary markets, they are still playing higher. These bigger players are okay with pay a higher cap rate. I would running those numbers under a 7% and 8% cap. Pretty much across the board, in every facility that we put offers on, we are between a 7% and 8% cap, except in Texas.
Texas is still a little bit more expensive. They are a little snooty over there. They think their stuff is way higher. In California, the West Coast is a little bit more expensive. I would say from Texas to the West Coast but Texas over to the East Coast, you can get good deals if you go to the owner and offer between a 7% and 8% cap.
You can sell many portfolios for an even higher price if you have many portfolios.
People think that, “You got it for a 7% or 8% cap.” I’m thinking like, “All my deals were way above that anyways.” Marcus & Millichap were freaking out that they could get something at a 6.25% cap rate, and there was still meat on the bone to be able to raise those prices to an 8% cap. They were like, “This never happens.” I’m thinking to myself, “What?” I find those deals all the time. It makes me realize that the bigger players are used to paying more money. Whereas us little people, we want to get the best deal out there. We are pushing to get the highest number we could possibly get.
That was exciting to me too, and they say said that secondary and tertiary markets are a hot commodity. The primary market is so oversaturated with all the bigger players and everybody that has money, and then all the suburbs. When I say primary market, I also say suburbs as primary markets and stuff. This is where all the bigger players are. This is where all the money is. Everybody is okay with buying stuff for a 4% cap and taking it to a 5% cap or buying stuff for maybe a 5% cap and getting it to a 6% cap. When you can find something that’s over a 6% cap and take it to an 8% cap, this is unheard of. This is not normal.
Think about that. If you go onto Crexi or LoopNet and you find good stabilized facilities. She took it from a 50% to 60% vacancy or served occupancy all the way up to 85% to 90% for her 630 units. She did a lot of the grunt work. That’s what we are here to do. For me, getting out there and looking for a good deal. My team put in thirteen offers, and all of those offers were from 7% to 8% caps. Maybe 1 or 2 of those were less than a 7% cap.
We already got one under contract and are about to get a couple more under contract. We have got people. We are taking their contracts and getting them reviewed by attorneys. There are a lot of things in the work for you. That’s where our offers are standing, and that’s where the people are. They are accepting.
We have one now, two facilities. I’m not going to tell you where it is because we don’t have it under contract yet. Our attorneys are reviewing the contract. It’s two facilities. They are within five minutes of each other. One of them was 50 units, and the other one was 100 units. It was a total of 150 units. $150,000 to $160,000 is what he’s making, and he wants to sell it for $1.5 million, which is right about where it should be anyways.
That’s a good number to be at but he hasn’t raised his rates in a year or so. We are going to take it from $0.50 to $0.60 a square foot. It isn’t a tertiary market. You can’t go up super high but you can go up a little bit. By adding that $0.10 per square foot, you are taking it from a $1.5 million facility to an almost $2.9 million facility. It’s a 7% cap. There are good deals out there if you talk to owners.
I wanted to point that out and remind everybody that your job is to build many portfolios. We have all of our facilities from the North Georgia Mountains into the Panhandle and in between all over Georgia. My team is looking all over Georgia for the area and talking to all the owners in the area. When we find a storage facility in that area, if it’s not close to any of the other ones that we have, then I’m like, “Now you have to talk to every owner within a 30-minute radius because we have to start building other facilities. We have to start buying for other facilities in the area.” To sell one facility, that’s 50, 75, or 150 units. That’s one thing.
If you can have 3 facilities that equal 400, 500, or 600 units or doors, certain square footage, then that is what makes your portfolio so much stronger. When my student went out and was like, “I will sell each of these,” each of those facilities we are going to be selling it $1.2 million. It was $3.6 million or $3.8 million. It’s almost $4 million.
When you go and sell it as a portfolio, you can list it for $7 million. The commission was only 3% or 4%. It wasn’t that high. When you start selling bigger facilities like that, if you sell higher numbers of units and square footage, then the commission of the broker comes down. If they were going to go and sell one facility, then it would be a 6% commission. If they are going to sell $7 million with the facility, they are only going to have a 3% or 4% commission rate. That’s how it works as well.
Your job is to talk to owners directly and find deals that are within your market. Texas is a little bit expensive. The West Coast is a little bit more expensive. On the East Coast, you can get 7% to 8% caps if you talk to the owner directly. Another thing that we do too when we talk to our owners is we always ask them if they want to owner finance.
We always ask, and I’m going to tell you that for every single offer that we put out, I was going to show you all that now and go over the deal analyzer. We have a brand new deal analyzer that I’m releasing to my students. Only my students and StorageNerds are going to get this deal analyzer. It’s the most amazing deal analyzer. I’m going to briefly show that to you all so you have an idea.
The StorageNerds doors open. If you are interested in joining, make sure you do that. You will have access to this amazing deal analyzer. We always make three offers for owner-financing. There are so many owners who are open to owner financing. I talked to one in Wisconsin from one of my students. We have one student that hired our team to find a facility for them.
I talked to this owner, and he was adamant that he wanted $1.9 million for his facility. We had sent some over an offer that was a $1 million offer. It was around $1 million, which is what it’s worth. What we did on the owner financing terms, we got it to $1.8 million or close to $1.9 million. I talked to him on the phone and he was like, “What is this owner financing? I don’t get it.” A lot of people don’t understand seller financing. It means that they are the bank.
It’s much better for you as an owner to seller finance because you don’t have to pay that huge amount of tax upfront. You get to pay that as you make your income on a yearly basis, you pay your taxes then. I was talking to this guy in Wisconsin and he was like, “I want $1.9 million.” I was like, “For a cash offer or a bank financing offer.” When I run the numbers for a cash or bank financing offer, $1.9 million doesn’t work. The cash-on-cash is going to be super low. The debt service ratio is going to be very low. For us to go to a bank and get a loan, we need 1.30% as the debt service ratio or higher.
“When I run your numbers at $1.9 million, it was $0.82 or something like this. No bank is going to finance that.” He was like, “I didn’t know that. I will pay you $1.9 million.” “You have to be the bank.” “Tell me how that works.” I said, “We have a purchase price, and then we have a ten-year loan with you that we pay a mortgage for ten years on. We are going to amateurize that over 20 to 25, maybe 29 years so that we can get our mortgage down. Over the course of ten years, you are going to make $300,000 or $400,000 on this deal. That’s how we get you to your $1.9 million.”
He was like, “I didn’t know that.” I said, “We already made you an owner financing offers. You have to look at that and see if that’s something that you want to do. The best part is that you only have to pay tax on the interest or income that you make that year. You get to defer a lot of those taxes. Paying everything upfront in one year, then you can defer those and pay it over time.” Our job is to educate owners on how we can create those structuring. It’s also building portfolios many portfolios. A hundred units are good, but 200, 300, to 400 units in an area of maybe 30 minutes or an hour, that’s going to be even more powerful.
The best part of the owner financing offer is that you only have to pay tax on the interest on the income that you make that year.
That is your job. Maybe the first deal you can only afford 50 units. That’s fine. You either buy 50 units with a piece of land that you can add more units on too or you buy several of them in your area within an hour’s distance until you can get to 300 or 400 units. That’s the best way to go about it, and then later down the road to be able to sell that as a portfolio and make a ridiculous amount of money. That’s what we do as mom-and-pops. We will sell those facilities to people like Marcus & Millichap is going to find or these franchises. They are going to be the ones that come in and buy those facilities.
I’m not going to share the deal analyzer with anybody. I’m going to go over it. Nobody has access to this deal analyzer. I’m going to use one of my deals as a case study, and then we can take a look at it and see. I haven’t run any of my deals in this new deal analyzer. This new deal analyzer is months of work. Adam is our Fund Manager. He helped a little bit with this as well.
It’s taking our deal analyzer and making it even better. I’m excited to at least show everybody and the students. My virtual assistants are using this thing and are my guinea pigs. Every time that they use it, like, “We need to update this.” There are a lot of versions of it. You will get to see the latest version of it, and then we will run some numbers. You can get an idea of how we look at deals and how we run numbers.
This is one of the deals that we have under contract. That’s American Mini Storage. This is the one that we are going to close on. I will share this with you and am going to share the new deal analyzer that goes with it. I will give you some pictures of this one, so you all have an idea of what it looks like. There’s a house on the property. It comes with a lot of lands. This is the apartment. This is the way that he manages his system. There’s a whiteboard.
It’s got some climate-controlled units as well. We take pictures of the ACs. Here’s the facility. Here’s a load of apartments. It’s got a gate. The gate is broken but it’s all fenced. It’s got security cameras. It’s like the garage. He got so much stuff there. He’s got four units full of stuff plus his garage. It was going to take us a little time to get all that out. It looks like a typical storage facility, so you have an idea of what it looks like.
This is what the facility looks like here. This is the one lot. This is one non-climate controlled long building. You could probably put another one right here. There’s plenty of room to put another one right here. There’s a whole bunch of empty space over here as well. There’s a little barn, and then there’s a house. There’s a house on this property.
This is the piece of land right here. You could clear it and put more. It’s like a half-acre. You could probably be 50 units if you wanted to, and then there’s this facility. That’s the main one with the apartment and stuff like that. It’s to give you an idea of what it looks like. There’s the land. Its three different parcels of land are what it is.
This is the deal. We picked it up for $1 million. You can see I ran the numbers at a 7% cap. Now we have a 7% cap. He’s making $116,000. It’s 136 units, 22,200 square feet. There’s one climate controlled, and then the rest are non-climate controlled. The valuation is as is. It comes out to 136 units and the gross potential range of $137,000, and then our expenses are right here. Insurance is $5,300, property taxes are $6,000, maintenance is $15,000. $605 for utilities and $43,000 for staffing.
That is the in-house office people. Boots on the ground plus the office people, and then maintenance. How much is it going to cost to maintain it on a yearly basis? The software is $10,000. Marketing is $1,800 that comes out. $6,605.53, and it’s $0.52 a square foot. We are going to look at the competition at $0.99 a square foot. This is the competition.
There are a lot of storage facilities within a 10-mile radius. I always tell all my Vas, “Put in all the competition with the 10-mile radius.” These are all the facilities right here. Pretty much every single one of them is full. Mountain Storage, we have got 5 x 10s, 10 x 10s, 10 x 15s, 10 x 20s, and 10 x 30s. When you look at a storage facility, one of the most important things that you need to do is do a competitive analysis. What we are doing here is doing competitive analysis. You are taking all of the storage facilities within a 10-mile radius. If you are in a city, it could be a smaller radius. If you are in a secondary market, it could be 3 or 5 miles or 1 mile.
This is in Blairsville, Georgia, in the middle of nowhere. We went out 10 miles. When we look at facilities, we look at units, and we look at apples to apples. If other competitors have different size units than us, we don’t look at those. We look to see what are all these facilities charging for the same thing that we charge. There are 5 x 10s and 10 x 10s.
It’s coming out to $1.40 a square foot and $0.93 a square foot, $0.98, $1.08, $0.66, $1.65, and $2.21. These numbers here, you take the average of this after you fill out what everybody is charging, and you can get that by calling and asking them. You can get that by going on to Radius Plus. You can get that by looking on their website. You just have to figure out how you are going to get that.
They do the competitive analysis, and then it comes up with a market rate of $1 for a square foot. What we do is we take what the prices should be at. We plug those in here. We are looking at their current rate. This is what he’s charging. For instance, he’s charging $32 for a 5 x 10, and all of the competitors are charging around $70. For the 10 x 10s, he’s charging $52, and most competitors are charging $93. We are taking that number and plugging it in over here and so forth.
That’s why in the competitive analysis, you are going to find out what everybody is charging on an average for each of the units and then also the average per square foot. You are going to look at those numbers and essentially say, “If I were full, this is what is as is making around $97.29. This is what we could be making $23,000.” He is way below what he should be. He’s at $0.52 a square foot and should be at $1. I see it’s at $0.43 a square foot, and he should be at $1.40.
Deal Analyzer
The unit mix is very important to plug in and add the square footage. You want the owner to give you the unit mix. You want to be looking and doing a competitive analysis on your deal. This is how we do it. We look at the unit mix and what the total is. We look at what the current rate is and what they could be making if they are 100% full.
We look at the market rate based on the competition charges and see what we could be making if we were full. If we were going to add more units, we would be looking at that as well. We are not going to add any more units to this. Let’s try to figure this out. I wanted to go over here and look at this and make sure that all these numbers are the same because these numbers were coming out weird.
You have to run the numbers to come up with your offers.
He was making $1.16 and $1.36. This is coming up. Let’s look at the financing input and see what happens. This is where we try to come up with the offers. We are running the numbers, and what we are doing is we are looking at how we can make a 10% cash-on-cash return or higher and also 10% of your net profit.
Those are the two numbers. We are shooting for double-digit cash-on-cash return and double-digit net profit percentage. That’s why we look at it this way. When you are running your numbers, what you want is you want to be able to come in and increase the rents from $0.52 to $0.99. You could see the debt service ratio is super low.
When you are coming in, and you are increasing the rates by $1 or $0.50 a square foot, then these numbers are going to be completely different. What we are looking is we are looking at making owner-financing offers that include the monthly payment and figuring out what the monthly payment is, the interest rate, and what your rates are going to be.
On the inputs tab, we added a drop-down here for interest-only in fixed interest. We have one owner who was like, “You could do interest-only for the first two years.” I was like, “Cool.” You can calculate that if you want to do interest-only payments as well. This owner-finance is $1 million, 10% down, 5% interest, 10 years over 20 years. These are the terms that we gave him, let’s just say.
You could do $1 million, nothing down, 5% interest, 10-year balloon, 20 years amateurize, and you can run the numbers. What you want to do is run the numbers based on these calculations. Your purchase price, your monthly payment interest rate, term of the loan, down payment, your total interest, and your net amount to the owner.
The owner is going to see this when you make the offer. For instance, they are going to see $1 million, and then they are going to say total interest, “I’m going to make $372,000 if I owner-finance this project.” The owner is interested in two things. The owner is interested, like, “How much money am I going to make? I can make $1 million cash or if I owner finances the deal, I could do a $1 million purchase price and also make $375,000 or depending on what the loan terms are. This is how much money I’m going to make.”
When the owner is looking at the deal, that’s what they are looking at, “How much money could I possibly make? Getting it now, paying taxes, and paying 30% at $1 million, I’m only making $700,000. Now or make $1 million plus $372,000 in paying those taxes over the course of ten years.” These numbers here, there are one million different ways that you can run this scenario.
That’s why we have our financing input section where you can sit there and run it at 20% down and 5% interest. You can run it at 15% down. The way that we do it internally is we are shooting for a cash-on-cash return of 10% and at a target net after mortgage of 10%. It shows in green if it’s a good deal, and it shows in red if it’s not a good deal.
That’s how we do it. I wanted to show you all this so that you know that you have to run the numbers to come up with your offers but this is how we come up with our offers. On the cashflow page, what we are looking at is what we want. What do we want in the deal? How are we going to make money on this deal? Essentially, you are going to look at current and then after updates.
After updates mean that you are increasing the price per square foot, we are taking it from $0.52 a square foot to $0.99 a square foot. If we keep the prices where they are, we are not going to be making any money on it. We have to be able to increase the rent. We have to be able to do that. That’s what the current versus the after updates are. I wanted to show you that too.
What you are going to look at, you as the buyer, if you are going to owner finance a deal, and we always offer owner financing on everything we do. You are looking at the gross monthly income. We are going to be making $20,000 a month, and you are looking at the monthly operating expenses. $6,900 is what it’s going to cost us to manage this.
We looked at that like, “Here are our expenses. $82,000 is what our expenses are going to be for the year to operate.” The mortgage, you want to take that, and then you want to minus. You want to take that which is your NOI. It’s $20,000 minus $7,000 is $13,000, minus the mortgage which depends on what type of loan you get. Are you going to have cash? Are you going to have an owner finance something, or are you going to go to the bank and get little big terms on that?
We separated is what we do. If you say, “If we paid cash, this is how much we would be making. If we got to owner finance, this is how much we are making. If we would bank financing, this is how much would be making on the deal.” That’s how we look at it. That’s what you want your net to be. That’s how you want to do it.
If we went to a bank and got this, it would be $1 million with 20% down, let’s say 5.5% interest. I don’t know what the interest rate is going to be. If we did owner-financing, we would put either 10%, 15% or 20% down, and then you could say, “I put 20% down. I’m only going to pay 4% interest. If I put 15% down, I’m going to pay 4.5% interest and put 10% down. I will put 5% interest. I will put less down and pay more interest or I will put more down and put less interest.” This is what we offer up here. These terms.
You will be able to look at the purchase price, the down payment, the interest rate, interest on the loan, the length of the balloon, and the amortized interest. For any costs, we put $50,000 in CapEx. If there’s no CapEx, then you could put $1,000. This probably is going to take between $20,000 to $25,000 in CapEx.
Staffing is quite high. He put $400 a month times 12 plus 50 times 52 plus $3,600. I’m not sure why he has started $36,000 in there. $36,000 is probably paying for Bonnie. That’s how we are running our numbers. We are inputting them, running in the numbers, and these are the inputs. Looking at the cash-on-cash return. Looking at the net target, the net mortgage after mortgage.
We like owner financing because it makes the owner more money in the long run and saves you quite a bit on taxes.
Make sure it hits 10% for both or higher, check our numbers and valuations to see if this is a deal that we want to do, and then put it on the owner-financing letter. This is what I call the magic letter. This is how our deals look. We have a letter that’s said, “Here are our offers. We have a cash offer, and then we have owner-financing offers.”
This is taken directly from our cashflow page here. We input this information right into our owner financing letter. You could do this manually. You don’t need a deal analyzer to do this. You offer a cash offer and then three owner financing offers. The very last section of our letter says, “We have come up with a lot of owner-financing scenarios for you. We like owner financing because it makes the owner more money in the long run and saves you quite a bit on taxes. My offers are suggestions, and I look forward to hearing your thoughts. I wanted to give you an idea of how it could work with owner financing terms. As far as the cash offer, we request 45 days due diligence period, and we close in 90 days.”
Owner Financing
I explained in the letter why we are offering so many owner-finance offers as well. We have this sheet here that we give to the owners, as well as the share sheet. We will show them the valuation and how we came up with the money, and then how they came up with the offer. We will show them the cap rates and this stuff. We will send them this share sheet and this owner-financing offer to get them to want to work with us.
In the email that we sent them, here’s the offer that we came up with. This is strictly a couple of suggestions. Do you have time to either hop on a phone call or a Zoom meeting to go over this? Stacy prefers Zoom meetings. If you are interested, we can meet. During the day, I’m doing a lot of Zoom meetings with owners is what I’m doing.
We have the info on the input sheets. We have financing inputs where we are inputting and doing the loan calculator for our offers. We have cashflow where we are going to see how much money we are making and stuff like this. Owner financing letter, and then we have the share sheet for the owner to share, and then we also have our valuation, so we can see what our NOI is if we buy it as is.
This is the NOI, the value potential if we bring it to be full, if we update it, and increase the rates. Any updates that you need to do is all right here. Is it a mixed unit tab where we are looking at the units and comparing the units what they are to what they should be? We have the competition. We are analyzing all the competition, and then this is for onboarding. Once you put it under contract, we have got checklists and things to do as well on our deal analyzer. It’s an all-in-one encompassing deal analyzer for us. Internally, for our team to manage one deal.
I wanted to show this to you so that you all had an idea of how we analyze our deals in-house, and that’s how we do it. You don’t need this deal analyzer to analyze deals. You can analyze it on your own. Doing the step-by-step process that I showed, coming up with your inputs, looking at your cashflow, coming up with an owner-finance offer, and looking at the valuations of your deal after you do all your inputs. Looking at your unit mix and looking at your competition. That is how you analyze a deal. You underwrite a deal. When somebody says, “I’m underwriting a deal,” that’s what they are doing.
We got a couple of questions. I will answer those. “Can you explain rather rates go down after the updates section?” At the current, we are making $137,000. The effective gross income is $116,000. We have a vacancy loss, so that’s why that’s there. Look at the gross potential rents at $264. You got a little bit of other income. He was calculating in maybe insurance or something like that. We have a vacancy loss and then the effective gross income. We are at an NOI of $162 after the mortgage in the end. “Should we pay cash for this?” We are going to be making about this much
“Are you going to owner-finance it and then the facilities?” We are selling our facilities as a portfolio is what we are going to do. For the five facilities that we have in Atlanta, we are going to sell those as a portfolio because I want to make some money. That’s why. Some of the other ones will be owner finance. We have a couple that was owner financing from the owners, and we will own those in a couple of years.
We will probably owner finance those right back to somebody else. We will be owner financing some of our deals because you might as well make money on them. Hold onto them and make some money on a monthly basis. I want to have some cash for next 2023. We are thinking about selling 4 or 5 of our facilities in Atlanta and have some cash so that we will have that available to purchase facilities, property, and stuff.
“How do I get started in the storage investment business?” I teach every Monday night. If this was over your head and you are a newbie and are like, “How do I do this?” You should be coming here every Monday night because every Monday night I teach something new. I’m doing case studies, bringing students on or doing a step-by-step process.
Make sure you come every single Monday night and hang out with me. It’s completely free for anybody that wants to tune in. You want to check me out on YouTube. Make sure you subscribe to me. If you want to get started and the step-by-step process, you can buy my course. It’s called Super Simple Self-Storage. You go to StacyRossetti.com, you could buy that there. You click on the online course Super Simple Self-Storage, and then you can take a look at this and see if it’s something that you are interested in.
Inside the course, essentially, you have the course that takes you through all 100 step-by-step videos on what you should be doing. “What do I need to do to set my office up? What do I need to be doing to mark for digital marketing and find deals? How do I do deal analysis? How do I do negotiations?” Everything that you need. Financing and management and everything are all there.
We also have a jumpstart course here. You are like, “I don’t want to go through the whole course. I’m going to do this jumpstart course.” It will at least get you started. All kinds of guest speakers on different topics as well too. They have come in, and they talked in a little section. You even get a deal analyzer, checklists, and templates.
A whole bunch of stuff is included as well, and then the workshop. All kinds of bonuses, Monday night sessions, and things like that are all there. That’s the course. That’s right here if you are interested. That will take you step-by-step to get you started. You have the freeway if you want to do free and DIY yourself. You’ve got the course if you want a guided way to learn, and then you also have StorageNerds. It is the coaching program that opens up soon.
We are going to open the doors on August 30th, 2022. I only opened the doors for six days, and you can decide if you want to join. I’m going to hop on to my fund. I always pitched my fund right after this. That’s StacyRossetti.com/fund. If you want to do a passive investor like you are like, “I have money but I don’t want to do the work.” The fund is where you want to be. Hop on and read that as well. I appreciate you hopping on, and hopefully, I will see you next episode. Take care.
