The Storage Investor Show
Learn how to turn your cash into cash flow with self-storage and small bay industrial. If it has a roll-up door, The Storage Investor Show covers it. Your host, Kris Bennett, will ask the right questions to help you find, fund, and close your next deal. New episodes every Tuesday.
The Storage Investor Show
If I Wanted to Buy My First Deal in 2025, I'd Do This
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DESCRIPTION
In this detailed video, I walk you through the essential steps to successfully investing in your first self storage deal in 2025. I cover the importance of education, selecting the right investment strategy, establishing criteria, securing financing, and the art of making offers. Also, I share critical mistakes to avoid, drawn from my own experiences in the self storage industry.
ABOUT KRIS
Kris has closed $130M+ in self-storage deals and expanded 200,000+ SF since 2021. He hosts The Storage Investor Show, interviewing industry leaders. A guest speaker at UNC Kenan-Flagler, he helps investors achieve financial goals through storage investing.
Follow him at @thekrisbennett or https://storageinvestorshow.com/
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NEWSLETTER
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If I had to start over and buy my first self-storage deal in 2025, here's exactly what I would do, step by step. 2025 is going to be a really interesting year. We have some tariffs, we have some other things possibly on the horizon, but I do think there's some opportunities within the storage space, on the acquisition side, maybe on the development side as well, if you find the right piece of land at the right price. Stick around to the very end of this video. I'll share with you a couple of critical mistakes I see some self-sourced investors making that I've made in the past. I want to help you avoid those, so stick around to the very end.
Speaker 1:First up, I want to get educated. I know a lot of people say this. It's kind of like cliche, but it's actually very true. When I first started in the business back in 2016, 2017, I had no idea I didn't really know anything about self-storage investing. I started searching online to try and find some information, ended up finding the self-storage almanac and that's what really opened up my eyes. For some of you guys who don't know, the self-storage almanac is published every year. It's a thick book. It's like I don't know almost 200 pages or so, something like that. It's also quite expensive, but it has all the data in there that you want to know about self-storage how many facilities there are, how many square feet per state, what's going on in financing and development, construction, acquisitions, all that kind of stuff, management technology, everything. All of that information is in one resource. When I discovered the Self-Storage Almanac, it really opened up my eyes to the opportunity within the space and it just had all the information that I needed. So this video is not sponsored by the Self-Storage Almanac, but I do recommend you get educated. I recommend it's one of the first things that you end up purchasing. You can get it at Modern Storage Media. I'll put a link in the description to the Almanac.
Speaker 1:All right, so get educated. Buy some books, the Self-Storage Almanac, but also join some Facebook groups. You can find probably Self-Storage Income AJ Osborne. You can find others BiggerPockets, joe Fairless, et cetera. There's a lot of other folks out there who are doing or talking about this space. There's other educators out there as well Scott Myers, mark Helm, et cetera. Really focus on the education. Mark Helm, et cetera. Really focus on the education.
Speaker 1:When I got comfortable with this just the overall idea of self-sorge, investing, the opportunity, the reasons, et cetera. It helped me have confidence in what I was doing, knowing that, hey, if I hit a couple of roadblocks along the way, I shouldn't stop, I shouldn't give up, because there's a great opportunity within this space. All right. So next up is choose your strategy. I alluded to this in the very beginning of the video.
Speaker 1:You can do a couple of different things. You can do, maybe a heavy value add, where you're going to buy a facility. Maybe it has some extra land and you can expand, meaning you can build more units and maybe add some parking, et cetera. That'd be more of a value add type deal. You can buy a stabilized facility. Maybe there's no room for extra construction, but it's cash flowing. Maybe the opportunity is there to raise rents, maybe add some tenant insurance, but it's not a huge lift on that deal and obviously not quite as risky either.
Speaker 1:There's also ground up development, which is going to be the most risky. On the other end of the spectrum, you're just buying raw land, going to develop self-storage on there. You have to check a couple of boxes before you do that, but that is one option. There's also conversions, where you have maybe a big box retail, a grocery store, whatever that went dark and you can purchase that dark building and convert it into self-storage and then obviously lease the spaces. That's going to be a good in-between buying, maybe a heavy value add slash development deal. It's like something right, kind of in the middle. So on the one end you have development, then conversions, then a value add deal and then a fully stabilized deal. Each of those carries its own risk return. You know factors there, something you have to think about.
Speaker 1:If you're just starting out, I probably recommend going towards a value add or a close to like stabilized deal where really it's just a management play. You just got to improve the operations at the facility. That's going to be the least risky and the one that's going to help you get your feet wet within the business. If I had $500,000 in my budget, let's say, I'd probably go after a smaller deal close to me if I could get it at a decent price and that's not going to be too much risk there. I probably would not do development or conversion deal if I could help it. All right. So that brings in the important piece here your criteria. So where are you going to look for deals? Most people start, and logically, right in their backyard, right, so right in their hometown or where they live, or maybe within about a two-hour drive, because that's how you can feel comfortable driving somewhere for two hours doing what you got to do and then coming back home within the same day.
Speaker 1:Ideally the size of facility is probably going to be under 40,000 square feet in units. That's going to be probably about three to 400 units maximum. That all depends on the size of the units, that unit mix that they have. If they have larger units, you're going to have. If they have larger individual units, you'll have fewer units on site. If you have a lot of smaller units, you're going to have a lot of units at the facility. Hope that makes sense. But roughly I would say 30 to 40,000 square feet is the cutoff and you probably want to go down to maybe 10,000 square feet. Smaller than that is, I mean, it's fine, I'm not saying don't do it. It's going to obviously be cheaper. So maybe that's a good way to get into the business. Not a problem there. But just it doesn't cashflow that much. And that's, I think, one example of a misunderstanding I have, which I will allude to here at the very end of the video.
Speaker 1:So next up. I'd line up my financing. I would talk to lenders so I would contact local banks, local credit unions. I'd also talk to an SBA lender like Live Oak Bay. They're one of the top SBA lenders for self-storage out there. I'd have conversations, I'd let them know what I'm looking for, what I'm planning on doing, and I would say there's no pre-approval letter like there is in single family home investing, but you can at least have a preliminary conversation with a lender so that will inform your underwriting, which is step number five, to start analyzing deals.
Speaker 1:A lot of people get stuck here. It doesn't have to be super difficult, right? What you do is you go on places like LoopNet or Crexi C-R-E-X-I, crexi and you'll find broker deals there and you can download the offering memorandums. Usually it's one, maybe two, three pages Tells you a little bit about the deal. It has some financials in there and the broker has already underwritten the deal and underwriting is just understanding how the cash flows are working, what cash is coming in, what expenses are being paid and then what's left over at the very end and you use some financial projections to say, okay, this is what the performance will be like in year one year, two, three, four and so on. That's underwriting. So you can use the broker's underwriting as a guide.
Speaker 1:I would not rely on it. I would caution you there to not rely on the broker's underwriting because just because they show you that the numbers work doesn't mean they actually will. When you start getting quotes from vendors, maybe marketing quotes, management quotes etc. You'll see that, underwriting, those numbers start to change just a little bit and usually that net operating income, your revenue minus your expenses, your NOI, your net operating income, you'll see that number start to go down a little bit as you underwrite and kind of zero in on those expenses because you realize, oh, you know what, it's going to be a bit more than I expected for that lawn maintenance or whatever it might be, so landscaping. So anyway, that's something that you want to think about.
Speaker 1:But you want to get your feet wet. We're going to download off your memorandums. We're going to look at as many deals as possible. If you work full-time I know that can be kind of tough you can set up some alerts, you can set up some searches and those will get sent to your email, your inbox, automatically. Then you can hop in there and take a look at some of those deals. Personally I've done two deals off of LoopNet. My very first deal I found it when it was on South Point Road in Belmont, north Carolina found that deal on LoopNet. Another deal I found was actually managed by public storage. It was listed by a multifamily broker. It was in the Alamance County area of really it was Mebane, north Carolina, just outside of Chapel Hill, north Carolina. So you can find deals on LoopNet. Don't listen to anybody else. It's a great way to get your feet wet and actually kind of get into the numbers of looking at deals. All right, I said a lot there.
Speaker 1:Moving on step number six, I'd start making some offers. You're not going to get a deal in a contract unless you make offers. It's kind of obvious but a lot of people are afraid to do it. You got to structure the offer in a couple of ways. Quick tips here you want to start a little bit lower right. You want to have some room there in the negotiation. Everybody needs to have kind of an emotional tie into the deal and understanding and feel like they got as much as they could out of the other side. You don't want the other side feeling like they could have squeezed you for a little bit more, because that sometimes can cause some problems later on when you need some concessions or whatever from the seller. You got to revisit your offer maybe, and now something can kind of trump to do so. So on the front end, show it a little bit low, not insultingly low, but just a little bit low. Give yourself some room to negotiate up, knowing what your top line number is.
Speaker 1:You also want to include a good due diligence period. I'd say no less than 45 days. Ideally 60 days is going to be good for your due diligence and then closing. Thereafter I would say no less than 30 days, and you want to have an extension in there for another maybe 15 to 30 days, just to have some wiggle room in that closing. Because your lender, something's going to happen at the very end and the day you think you're going to be able to close you might need to close a day or two later, and that should be okay with the seller. But you want to have an extension just in case.
Speaker 1:Talk to an attorney. Don't take my advice on anything, on everything. Right, you want to talk to your attorney. Make sure you have good, solid legal advice there. That is my one caveat. Okay. So that's what I would do Start making offers.
Speaker 1:Excuse me, at the very end you'll end up closing something. It will happen. You might have to look at a hundred deals, 150 deals, 200 deals, but it will happen at some point in time. That ties back into the very beginning. If you know that self-sorge is a good investment because you've done your research, you're educated on the asset class, it'll help you keep going.
Speaker 1:When you start to get discouraged, where, if you're going, when you start to get discouraged, if you're in the right, you know the 20th deal, you made your 10th offer. You're not getting anywhere with it. You've got to be able to have that encouragement, that gas in the tank to keep going. I've been there. It can be discouraging at times but you've got to keep going and keep pressing through. All right.
Speaker 1:So a couple of mistakes. One is overpaying. I know that that's also cliche. You don't want to overpay so cliche, you don't want to overpay. But when you're in the heat of battle you're kind of in the heat of the negotiation it gets really tough and you feel like okay, maybe I can come up a little bit here, maybe we're a little aggressive on our expenses, maybe we can taper those down just a little bit.
Speaker 1:I caution you against that. I also caution you against overestimating how much you can raise rents in that first year. I can tell you this from experience that as soon as you close on a property, you will have a percentage of your rent roll. Your tenants will just leave, doesn't matter what you tell them, doesn't matter if you tell them I'm going to treat you so well, I'm not going to raise your rents. You know all that stuff. I'm going to make improvements, whatever. 10% or so 5%, 10% of your rent roll is just going to go. It's just going to be the case. So you're going to have a drop in occupancy right away. That might be okay because, let's say, the rents are low anyway. You can get new people in there to get at a higher level and that's okay. If there's a good demand in the market, you'll be okay as well.
Speaker 1:But just be cautious on overpaying and kind of cutting expenses too low in order to meet that seller's number. Be careful on getting too aggressive on your rental rate increases. Be realistic on those occupancy numbers. And then the other part of it too is don't ignore the market, right. So I know a couple of folks who bought deals in kind of like tertiary, like rural markets, maybe smaller populations, I call it like fixed populations, where you don't have too many new homes being built but you don't have too many people moving out either. It's just kind of been at 30,000 people for the last 10 years or so. You don't have much going on in that market. I know some folks who bought deals. They went in and they tried to push rents and do revenue management and kind of add some technology et cetera, thought they would get higher rents. Turns out their occupancies dropped and it made it very difficult to meet those cashflow expectations. So just be very diligent and careful when you go into market. Again, you don't want to get overzealous on those rental rate increases. You don't want to overpay. You want to be realistic. I know it can be very tempting to kind of get a deal done, but I caution you against doing that. So all right.
Speaker 1:So let's cover that one more time real quick, from the very top. Obviously, step one get educated, build your network. Step two choose your strategy value add, development, conversion or stabilize, deal with cash flow. Pick your criteria or choose your criteria. I would say under 40,000 square feet is going to be good. Close to home is going to be better. Eventually you may need to go out a little bit further, but for the first deal, try and get one within about two hours of driving time of where you live. That's going to make it a lot easier. You want a lot of your financing. Talk to some lenders. Get those conversations going early. That's going to inform your underwriting, which is step five.
Speaker 1:Start analyzing deals. Download offering memorandums from LoopNet, from Crexie. Start talking to storage brokers. Oh yeah, by the way, for education, check out your local, your state self-storage association. They will always have like quarterly meetings. You can get to know some folks and go to wherever they might be in the near city and meet the brokers. Meet other people, kind of introduce yourself, and then you can start analyzing deals. They'll add you to the email list and you can start analyzing those deals from those brokers.
Speaker 1:Start making some offers. Right, don't come in too high. We're coming a little bit lower so you have some room to negotiate up. Give the seller the feeling, the emotional feeling they squeezed you for every last dollar when you know you actually just hit your ideal number. All right, and then be careful again.
Speaker 1:The caution you're overpaying, getting too aggressive on the rental rate increases and then buying in markets and pushing things too hard in smaller markets that are kind of stable, stagnant, I guess you'd say fixed. They're not really growing but they're not actually shrinking either. You don't want to become the person in that market where everybody has a. You have a bad reputation because you push rents too hard. As a new owner All right, that's it, guys. Let me know in the comments what are some pitfalls that you've experienced while you were trying to find deals. What's been your biggest challenge so far? Let me know how I can help. I want to hear your thoughts in the comments. Subscribe, like and I will see you guys on the next one or, if you're listening, on the podcast. Thank you so much. We'll catch you on the next episode.