Storage Authority minute on Interest rates Impact on self-storage development.

BY Marc Goodin

I can't wait to see what the feds do with interest rates tomorrow.

Question: Marc, what is the main impact of high interest rates on new self-storage development?

High Interest rates have not stopped this Storage Authority Franchise-owned facility from opening this week!

Storage Authority Buck RD, NJ will make a profit even with the current rates. Just imagine the Extra profits when rates drop 1 or 2 percent and rental rates are raised to meet the demand of people moving!

 A 1% increase in interest rates equals  $70,000 in interest expenses/year for a $7 million loan ($10,000 per million borrowed).  So high rates temporarily often means you make less profit.  But the good news is you can refi when rates come down. And save $70K per 1% rate reduction.

I built my first 2 self-storage facilities in the Great Recession in the late 2000s with 8 % interest rates.  Most people thought I was crazy, but it was the best financial move I ever made. I had a huge head start compared to those who built later when rates came down.

 I initially made a small profit and was able to pay zero taxes on my engineering and rental properties income. When I refinanced at 6% and again at 4% it was like I died and went to heaven.

Question: Do you have one or two other interest rate-sensitive items you can share?

Answer:  Novices think commercial loans are similar to home mortgages, and the interest rate is good for 30 years.  Most self-storage loans have a 5 to 10-year term before they have to be renewed at the current interest rate.  This means when you do a P & L, you should use today's rates, but also do a check at lower and higher rates.

Often in times like now, when rates are high, there is less competition in the works, and the price of land is lower or at least not increasing.   Development costs and time frame can also be shorter because there are fewer developers hiring designers and contractors.

 If anyone wants to learn more about getting started in self-storage, please check out Storage Authority Franchise at:

www.storageauthorityfranchise.com.