Why Self Storage Ownership is the Best
Short Cut to an Early Prosperous Retirement.
By Marc Goodin
Can you retire comfortable with $750,000 in cash or stocks? No way! Can you take $750,000 and build a self storage business and retire comfortable? Absolutely! Let’s just say your definition of comfortable retirement income is $250,000 a year. Then your $750K invested with a healthy return of 10% would last just 4 years before you were broke. Even if you cut back your income expectations your money would not last for your reinterment, never mind an extralong retirement.
Your $750K invested in your own self business could provide you your $250,000 income/year for life and even for the next generations. And it is inflation proof because profits can increase yearly by simple raising rents. But it is even better than that. Every year you are adding to your real estate savings jackpot. Typically, in the multiple millions in a few short years, especial if you built a new facility (vs paying top dollar for an existing facility).
Most multi-millionaires in the US built their wealth in real estate or by owing their own business. You can look up the stats – Real estate creates 90% of millionaires. Self storage combines the best of both worlds because of CASH FLOW – LEVERAGE- PRACTICALITY & APPRECIATION
LEVERAGE: Real estate is one of the easiest assets to leverage and to create generational wealth. Self storage is extremely loan friendly due to their calculable profits and also has one of the lowest failure rates for any real estate investment.
CASH FLOW: When you buy a self storage or develop a self storage it is easy to predict the cash flow. A 3rd party feasibility study by a self storage expert is important to confirm the cash flow is reasonable for the investment.
PRACTICALITY: Real estate and self storage in relation to other ways of making millions is the most paratactical for many business owners. Self storage cost less than other business-like hotels and have lower maintenance because they do not have finishes like plumbing, insulation, electrical like other businesses.
When you look for a business you want a business where the demand and income are increasing. Self Storage is a $39 Billion business and is growing well over a Billion dollars a year. Demand continues to increase due the shift in how we live. Moving accounts for the highest portion of rentals. The US is a very mobile, people continue to move for their jobs and other reasons like weather, amenities, upsizing and downsizing. The second highest portion of renters is local residence (not moving). On one hand is has been shown the larger the house is the more likely they are to use self storage and on the other hand the younger generation is moving to urban areas with much smaller houses that lead to more self storage usage as well. Even the average length of stay is increasing.
Once again, self storage has proven itself during a down economy. The current Covid 19 pandemic has been extremely hard for many businesses, from the restaurant to wine business to one of the largest industries, the travel/tourism industry. Self storage is an essential business in most states and never closed for Covid 19 and 2020 is turning out to be one of the best years for self storage. And instead of land prices skyrocketing we are seeing land prices going down and often selling for much less than the asking price. This makes sense as many hospitality, retail and commercial developers are not building due to the pandemic.
Self storage has fewer employees than most businesses. It takes much less of an owner’s time to operate with a manager driven system then practically any other business to make the same profits. Where else in 3- 5 years can you become a multi-millionaire for 5-8 hours a week. (check out this link to see what and owners time is spent on for premium profits). Because it is a real estate income profits can be offset with deprecation for tax savings you do not get in non-real estate investments.
While there is no guarantee the self storage outlook is looking good for many years ahead.
APPRECIATION: Real estate prices will always rise in the long term due to the limited amount of land available. Everyone wants to own it but not everyone can. Self storage business appreciated both because it is a real estate business and because rents can typically be raised yearly more than the increase in yearly expenses.
So, what do you get for $750,000 equity? If you qualify you get the ability to borrow $5,000,000, with a 15% down equity investment from and SBA lender. And the good news is you can also borrow soft costs (design fees, professional fees, permit fees, etc. And even better you can borrow the carrying costs (bills, staff payroll, mortgage etc.) to the breakeven point. Until recent times SBA lenders were not permitted to do self storage loans, so you needed three times the equity to qualify for a self storage loan. Under this scenario, you can invest $5.75 MM in your self storage facility. This represents a substantial self-storage project – one that is not a “hobby business” and one that can be expanded as warranted.
Assuming 5 acres of land cost $800,000, $1.2MM in soft and carrying cost and that the site work and building costs are $60/gross sf of building you can build a 62,000 square foot self storage.
The Math: $5,750,000 total investment - $800,000 land – 1,200,000 soft/caring cost = $3,750,000 for construction.
$3,750,000/60/sf = 62,000 gross square foot new facility.
Most developers use an SBA loan as a steppingstone and refinance in three years with a traditional loan when their facility is full, and the SBA prepayment penalty is done. They are often building another 20,000 sf with nothing down for significant additional profits and or taking a sizable cash out and still making a six figure NOI.
So, if it is so easy why doesn’t everyone become a self storage millionaire. While it is easier than working 9-5 for 40 years, it is not easy. Secondly, most people do not have $750K cash to invest and or are not ready to own their own business. It is just hard enough that most people will not own a self storage – making it a great opportunity for the rest of us.
If you have more questions about developing your self storage a good place to continue your research are the 12 Storage Authority Franchise FAQ’s that get right to the point.
If you want to get more information, please provide your contact info here: storageauthorityfranchise.com/opportunity1/
Marc Goodin is President of Storage Authority LLC. www.StorageAuthorityFranchise.com He owns 3 self-storages he designed, built and manages. He has been helping others in the self-storage industry for over 25 years. He can be reached at marc@StorageAuthority.com or directly at 1-941-254-3055 to answerer your self-storage franchise, development, marketing, sales and operational questions.