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Offer Guidelines

Preparing to Purchase a Self Storage Facility, Part 4: Offer Guidelines

Many first time self storage buyers have experience with residential or commercial real estate such as high density housing, small office buildings or retail strip centers. But self storage is unique, and has several offer guidelines that you should include in your purchase and sale agreement that are not typical to other real estate transactions.

In Part 3 , we looked at managing the timeline of the transaction and the steps to make it to the closing table. Now let’s review the offer guidelines you need to be aware of that are specific to self storage:

1.  Price
A real estate preconceived rule of thumb is to make an offer at 90% of list price. So if a property is listed at $1,000,000, that buyer would present an offer of $900,000. The supply and demand of self storage facilities alters the 90% rule of thumb. Here’s how: self storage investments are not a commodity. If you’re used to buying single family rental houses, you know the next house for sale in your town will be listed on the MLS within hours. It’s not a big deal if your offer on a property is declined because there’s always another just around the corner.
Consider that there are over 138.5 million housing units in the United States, with only approximately 55,000 self storage facilities. That means that there’s only one self storage facility for every 2,518 homes. No wonder self storage facilities being offered for sale are few and far between! Add to that the fact that the average homeowner has been in their home for 8 years, with the average stay being closer to 4 years prior to the Great Recession. And many self storage owners whose facilities we sell have owned them for 15 years or longer. Now you can see why the supply of self storage investments is so limited.
We recommend discussing an appropriate offer with the listing broker. There may be more leeway with some self storage offerings for negotiation while others are expected to close at or even above list price based on market interest.
2.  Due Diligence Period
due diligenceTypically the due diligence period for self storage facilities ranges from 30 days to 60 days. Thirty days is typical if the property is to be purchased without financing or with traditional bank financing. Forty-five days is typical with all cash or traditional financed properties where the due diligence is expected to be more complicated than normal. Sixty days is more typical with Small Business Administration (SBA) financing, since the bank underwriting the loan will perform more in-depth due diligence than traditional financing.
3.  Closing Period
The closing period takes place after the due diligence period, typically with a non-refundable deposit being placed at the end of due diligence, with the expectation that the buyer will consummate the sale by the end of the closing period. A typical closing period for a self storage facility ranges from 15-60 days. Fifteen days is typical with an all cash acquisition of a property (when there is no third-party financing the purchase). Thirty days is typical when the financing is obtained through traditional channels (a local bank, a national bank, a self storage specific lender, etc.). Sixty days is far longer than most sellers would like to wait through a closing period, and typically is only used withSBA financing since the banks providing SBA loans typically require it.
4.  Transfer Taxes
Transfer taxes and customs related to them vary by state and even by municipalities. The listing broker on any self storage property offering should be able to inform you as to the custom in the area.
5.  Items to Be Pro Rated
Typically rent, utilities, and real estate taxes are pro-rated with self storage facility sales. Of course those numbers are a moving target, changing each day, but you’ll want to specify what is being pro-rated. In particular, you will want to be very specific about how rent will be pro-rated. Our offering memorandums include very specific language for buyers to use in their purchase agreements that can be customized as needed.
6.  Items Excluded From Sale
Many self storage facility sellers manage the facility themselves until the day of sale. When that is the case, they usually have personal possessions at the property that should not be assumed to be part of the sale. For example, they may have a computer they manage the property with that has their personal information on it or a small tractor that they have used to maintain the property. If you want to purchase anything on the property that is not the land itself or improvements to the land (i.e. buildings), then you need to spell that out in the purchase and sale agreement and expect that it may become part of the negotiations for the sale.
With every property IRE markets, we provide guidance on each item discussed above in the offering memorandum. We’re happy to review them with you further on particular properties.

Our brokerage team is happy to help you achieve your investing goals. If you’re ready to buy a self storage property, you can contact us today and we’ll get you on the path to success.

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