Master Class: Funding Your Self-Storage Business with ROBS

By Garrett Byrd

Storage Authority Franchise

Introduction to ROBS for Self-Storage Entrepreneurs

Welcome to this master class on leveraging Rollover as Business Startups (ROBS) to fund your self-storage venture. In a recent discussion, Garrett Byrd from Storage Authority and Diane Rosenkrantz from Tenet Financial Group explored how ROBS offers a unique, non-debt funding solution for aspiring self-storage business owners. This article distills their insights to help you understand how to tap into your retirement funds to build or buy a self-storage operation without incurring taxes or penalties.

What is ROBS?

ROBS, or Rollover as Business Startups, is a funding mechanism that allows you to use pre-tax retirement funds, such as those in an IRA or 401(k), to finance your self-storage business. Unlike traditional withdrawals, ROBS enables you to access these funds penalty-free and without taxable distributions, making it a powerful tool for entrepreneurs.

• How it Works: Funds from your existing retirement account are rolled into a new 401(k) set up for your business. These funds are then invested in your company, providing liquid capital for business expenses.

• Key Benefit: It’s a non-debt option, meaning no loans, no interest rates, and no required repayment schedule.

  
  

Why Choose ROBS for Self-Storage?

Self-storage is a capital-intensive industry, often requiring significant upfront investment for land, construction, or acquisition. Garrett Byrd emphasized that ROBS is particularly valuable for professionals who are “house rich but cash poor” or those needing a cash injection for loans like SBA financing, which often requires a 15% down payment.

Advantages of ROBS

1. Tax and Penalty-Free Access: By structuring the rollover correctly, you avoid early withdrawal penalties (typically 10%) and taxable events, potentially saving 35-38% compared to a standard withdrawal.

2. Non-Debt Funding: Unlike loans, ROBS uses your own funds, so your credit score or collateral isn’t a factor.

3. Flexible Use: Funds can be used for any legitimate business expense, including:

   • The 15% cash injection for SBA loans (common for $5-8 million self-storage projects).

   • Building or buying a self-storage facility.

   • Operational costs, such as salaries.

4. Partnership Opportunities: Multiple individuals (e.g., spouses or business partners) can combine their pre-tax retirement accounts to meet funding goals.

   
   

Example Scenario

Imagine you have a $400,000 IRA and are 56 years old. A traditional withdrawal could result in a significant tax hit and a 10% penalty. With ROBS, you can roll those funds into your self-storage business’s 401(k), invest them in your company, and receive shares of stock—keeping your money working for you without losing a chunk to taxes.

Eligibility and Restrictions

Diane Rosenkrantz outlined the key qualifications for using ROBS:

• Eligible Funds: Must be pre-tax retirement accounts (e.g., traditional IRA or 401(k)). Funds from a current employer’s 401(k) are typically inaccessible unless you’re over 59½ or no longer with the company.

• No Specific Experience Required: ROBS is accessible regardless of your background, as long as the funds are pre-tax.

• Usage Restrictions: Funds must be used for legitimate business expenses. They are transferred to a new 401(k) and then wired to your company’s bank account as liquid capital.

  
  

ROBS vs. Traditional Financing

Compared to traditional loans, ROBS stands out as a non-debt alternative:

• No Interest or Repayment: Unlike loans, ROBS involves no interest rates or fixed repayment schedules.

• No Credit Checks: Your personal credit or collateral doesn’t impact eligibility.

• Complementary to Loans: ROBS is often used alongside SBA loans to cover the required cash injection, preserving personal savings.

  
  

Process and Timeline

The ROBS process, as explained by Diane, is straightforward and efficient:

1. Set Up a Corporation: Tenet Financial Group assists in establishing your business entity, including obtaining federal tax ID numbers, drafting minutes, and ensuring compliance.

2. Create a New 401(k): Your retirement funds are rolled into a new 401(k) for your business.

3. Fund Transfer: The funds are invested in your company and wired to your business bank account.

4. Timeline: From start to finish, the process typically takes about five weeks, making it a relatively quick funding solution.

   
   

Getting Started with ROBS

For self-storage entrepreneurs, ROBS is a game-changer, especially for those looking to franchise with companies like Storage Authority. Garrett Byrd noted that several Storage Authority franchisees have successfully used ROBS to fund their projects, praising its flexibility and tax advantages.

To explore ROBS for your self-storage venture, contact Diane Rosenkrantz at Tenet Financial Group:

• Email: diane@tenetfinancialgroup.com

• Phone/Text: 413-354-4662

• Website: www.tenetfinancialgroup.com

• Book an Appointment: https://go.oncehub.com/DianeRosenkrantz

For more on self-storage franchising, reach out to Garrett Byrd at Storage Authority:

• Email: garrett@storageauthority.com

• Phone/Text: 941-928-1354

• Website: www.storageauthorityfranchise.com

  
  

Conclusion

ROBS offers a smart, tax-efficient way to fund your self-storage business without taking on debt. Whether you’re building a new facility or acquiring an existing one, this strategy can unlock the capital you need while preserving your financial flexibility. Connect with experts to turn your self-storage goals into reality.