Deal breakdown – from $635k purchase price to a $2.85 million value in 3 years

The self storage acquisitions market is tough, but the properties we own are performing well. Last week we closed a refinance on one of our earliest (and toughest) deals – a 3 property portfolio in western Pennsylvania.

We acquired the 25,090 square foot portfolio at public auction in October of 2019 for $635,000 and it appraised for $2,850,000 last month.

Lets jump right in after this short ad from one of our long time sponsors:

The days when the deals were plentiful

We found the deal advertised on Loopnet by a real estate auction company (which is a thing in PA). The auction was on September 25th but we didn’t want to let it go that long so we called up the auctioneer.

“What price would it take for the owner to cancel the auction and go under contract with us right now?”

The response was basically “make an offer and I’ll talk to him but you need to put at least $150,000 of hard money down on day one.”

This was early in our journey and we weren’t exactly flush with cash and $150,000 was A LOT of money. We also didn’t know any folks with money back then and were really struggling to finance any of our new acquisitions with investors so we knew we needed to close this deal ourselves.

P.S. We’re seeing the market change fast and know some self storage deals will be presenting themselves over the next 6-18 months. If you’re an accredited investor interested in joining our investor database click here.

We made the offer at $635,000 with $150,000 of hard earnest money at signing, wired the money, and closed on the property with a local bank providing 80% financing at 4% ($500,000 total). It was acquired at $25.30 per rentable square foot.

The property was a mess because the owner had dementia and the business was totally failing. About 60 of the 150 customers were paying rent by sending him a check each month, but the other 90 were basically either squatting or the stuff inside had been abandoned and left as junk.

The property had about $5,000 on the rent roll.

The owner handed me a box of old leases going back to about 1995 at closing. We proceeded to work to contact every customer and were able to get the 40 paying customers into our online software. We showed up the next week with a generator and grinder and cut off the rest of the locks, took photos of the inside, and put combination locks on the units.

My partner Dan and I cut all the locks off.

A few weeks later we held a massive online auction.

With the units clear we began to advertise, rent units, and lease up the property. Here is how the first year went:

That year (2020) we increased occupancy from 31% to 55% and took the rent roll from 4,852 to $9,706.

Year two (2021) we continued to lease and perform well, bringing the property to 89% physical occupancy and $16,075 on the rent roll.

The next year was about driving revenue and increasing rates to get the property truly stabilized. Below is our performance so far this year (2022).

Here is our 2021 profit and loss statement:

And here is our trailing 12 month profit and loss statement as of October 1st 2022:

So now we have a stabilized property generating $154,000 per year in Net Operating Income.

Do we sell it or refinance it?

The answer to that question was easy for us because this portfolio has a lot of room for more storage on it and is also nearby a few properties that are still stabilizing – so selling would not be ideal at this time.

We went back to our original lender and decided to do a cash-out refinance.

Since revenue the previous 6 months was higher than the 6 before that, we valued it on a T-6 basis, which means “trailing 6 months performance”. We also had a few lumpy expenses like property taxes those quarters which put expenses quite a bit higher the last 6 months ($50,000 vs $41,000 average). This T-6 model put our annualized NOI at $178,900.

The appraisal came back at $2,850,000 which was a 6.2 cap – a favorable valuation. (if you aren’t sure how cap rates work, take this free quiz).

We still had $445,000 of debt on the property at a fixed 4.0% interest rate from the initial acquisition. We added an additional $1,025,000 in debt from the same bank on a 5 year term at 5.85% interest and a 20 year amortization schedule. The total debt, $1,470,000, is about 51% leverage. We’ll add more in a few years if interest rates drop back down to earth.

On closing day, which was last week, we got $1,025,000 wired into our checking accounts, tax free.

It turned out to be a really good deal and life changing money for my partner and I. We’re glad we couldn’t raise outside capital back then!

Onward and upward,


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About Me

I started the Sweaty Startup in December of 2018 because I believe the Shark Tank and Tech Crunch culture is ruining the real spirit of low-risk entrepreneurship.