In today’s episode, Nick talks about a self-storage facility that he and his partner bought in July of 2019. He goes over the numbers of buying it, operating it, and income from units being rented out, as well as expenses. His goal is to show you just how profitable a self-storage facility is.
This property is unmanned, meaning that you rent it online, get a gate code and directions to your unit, and a free lock is waiting for you. Quick, easy, with little or no interaction needed, which means we can operate it from anywhere in the country.
The property has 66 units of varying sizes, and has 11,000 sq feet of storage space. It was listed for $515,000 and they put in an offer $440,000. It was declined. Nick and his partner waited about a month, and put in another offer for $472,000. This time the offer was accepted. At the time, the property was 80% full, generating roughly $6,000 a month in revenue.
- $482,000 – Total price of buying the property included closing costs of about $10,000.
- +$7,500/month – Monthly revenue after raising rent by 20%, still staying under market rent.
- -$10,000/year – Property taxes
- -$200/month – Utilities
- -$100/month – Software
- -$200/month – Bookkeeping/accounting
- -$250/month – Maintenance, not including any work that Nick personally does at the units
- -$250/month – Marketing via Sparefoot, which is an aggregator that gets a cut anytime they bring Storage Squad a new customer.
All of that equals out to $90,000 a year in revenue and $22,000 a year in operating expenses. That leaves $68,000 a year in net operating income. To get a good idea for the value of the property, Nick uses Unlevered Yield, a metric that measures the percentage of the projected first year income ($68k) into the amount paid for the property ($482k) if it were paid in cas. In this case, they are projected to hit a 14.1% unlevered yield, which is a GREAT number.
Debt and Value
However, they did acquire debt in this purchase. 80% of the purchase price ($385k) was leveraged, and the rest ($100k) was paid in cash. In addition to the operating expenses, they pay $1,400/month in interest, and $1,000/month in principal. This comes out to $16,800/year in interest, and $12,000/year in principal.
They did an 80/20 loan to cash percentage, with a 20-year note at 4.25% interest rate. The interest rate is on basically a 5-year adjusted rate mortgage, which mean the interest rate will change at the 5-year mark. Nick’s hope, however, is to get more customers and raise the rent to market value to increase the value of the property to around $800-900k. Their goal is to refinance it and pull out more debt on the property in order to go out and buy more storage facilities.
If you look at the Levered Yield, which makes the interest of the loan as an additional expense, you get $51,000 a year in income versus the $68,000. Calculating it this way shows the income as either cash coming in or money paying toward the property in principal, and money going toward the interest another expense. Looking at it this way, with a $100,000 investment, they are making $51,000 a year that goes toward paying off the loan and income for the business.
When you look at real estate, the most important metric is your cash on cash return. For this particular property, after expenses, interest, and principal for the loan, there is $39,000 cash left in the account for Nick and his partner. That makes this investment a 39% cash on cash return, and THAT is why Nick and his partner bought it, and will continue to buy more self-storage facilities.
For this small property, Nick visits it about every 3 months. They have about 2 cars come to the facility every day. All rentals are online and 89% of customers are on recurring payments. The customers are HAPPY because the prices are lower than every other storage facility, and the customer service is convenient and rarely needed. Nick’s end goal is for his partner and himself to own as many properties like this as possible, earning income with very little expenses, time, and energy going into them.