Ep 117: How self-storage investing works

My partner and I built a self-storage facility from the ground up with 5 outside investors that opened in May 2017. Fast forward to today, our company has 5,000 units across 24 properties in Ohio, Pennsylvania, New York, and Connecticut. I’m putting offers on self-storage facilities daily, with a full acquisitions team focused on finding deals, and we’re growing fast. It’s just a matter of time until we have 50 properties in 30 states.

The difference between self-storage and other real estate asset classes is that it’s a high-touch business. The cost basis of our self-storage portfolio is $34M, and we have 5000 tenants on month-to-month leases. My operations team answers 75 phone calls a day, 75 emails a day, and handles 30 move-ins or move-outs a day, as well as managing 30+ vendors for plowing snow, lawn care, cleaning units, etc. Self-storage is not a passive investment, but that’s why I love it, and it’s gotten really hot lately.

There are different types of self-storage facilities. We’ve probably all seen the big box class-A facilities in major cities like Cubesmart, Public Storage, Life Storage, Extra Space Storage, and U-Haul. That grouping owns 20% of the market, and they operate in a totally different range than my company does. Bolt Storage owns row facilities, which are drive-up facilities with individual drive-up doors. We’re in rural markets and tend to operate at $40-70 per square foot, whereas the big players buy for $200 per square foot. We operate remotely and efficiently, which allows us to keep our costs down, and we tend to price units around $10 per square foot per year.

A facility that brings in $100K in revenue per year may have $30-40K in expenses, but some facilities get down to a 25% expense ratio. Our facilities are profitable cash-flowing properties, but the downside is that people are starting to love storage, which means we need to buy at lower cap rates. Thankfully, Bolt Storage is at a unique advantage with our revenue management. A lot of the row facilities we buy for up to $5M are operated by incompetent owners who are afraid to raise rent, so we bring big city revenue management into small towns. With every tenant on a month-to-month lease, we can raise rent with 30 days’ notice by however much we want, and that’s a huge tool for us to raise property value.

Many new investors look to SBA loans for early deals, but we typically utilize local banks because it takes less time and there are fewer hoops to jump through than SBA loans. We’ve been aiming for a loan-to-value ratio of 65-80%, so for a $1M facility we may secure a loan of up to $800K to buy the asset. However, in the current interest rate environment we’re more likely to stay below that 80% mark to stay safe.

Operations are critical in real estate, just like any small business. Running with cost-efficiency and raising revenue to market rates has been a huge advantage for us and it’s part of why we’ve been successful. Right now acquisitions are the bottleneck for almost every real estate operator in this environment.

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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.