Lessons Learned from Preparing to Purchase a Self Storage Facility
If you’re considering purchasing a self storage property, hopefully you’ve done your homework. Over the last decade, self storage has become a popular investment, often offering high returns than other real estate investment classes. However, buying a self storage facility is no small task — so how can you best prepare yourself for a successful acquisition?
There are many important elements of the buying process to keep in mind that can make or break your success as a buyer and future owner of a self storage facility. Here are a few tips that the team at Investment Real Estate has put together based on twenty-two years of experience:
- Assemble the right team
- Have an investment strategy
- Start conversations with lenders
- Understand what is needed for due diligence
- Stay on top of operation transitions
Assemble the Right Team
Whether this is your first time buying a self storage facility, or if you’ve been down this road before, a team of professionals can help make sure you buy the property that is right for you. In addition to a self storage real estate broker, you may need to engage the expertise of an attorney, appraiser, financial institution, surveyor, environmental agency and contractor to review structural quality. Though that may seem like a lot of moving parts, the right team can help you determine the ideal self storage investment, help you close quickly and set your offer apart from other buyers.
Have an Investment Strategy
Once you have your team assembled, it is important to develop an investment strategy, which will help you quickly evaluate and make decisions on properties as they come onto the market. Self storage investments offer a variety of methodologies to produce a positive cash flow and equity returns. One common strategy is to buy a value-add facility. Identify a facility with below market rental rates, room for expansion and the ability to make property improvements that improve the perceived quality of the facility. Not only will this allow an owner to raise existing tenant rates and increase new renter rates, it will also improve the facility quality and allow for a lower exit cap rate at the time of sale. Discussing an investment strategy with your team is a worthwhile way to ensure that you are finding a property that meets your long-term goals.
Start Conversations with Lenders
One of the most common mistakes that a potential buyer of a self storage facility can make is not talking with lenders early enough. Having a term sheet from a lender ahead of making an offer helps to separate your offer when competing against other buyers. Last but not least, have several potential lending partners lined up to ensure that you are getting the best terms possible. Making lenders compete for your business could result in significant savings in cash flow and at disposition of the facility.
Understand What is Needed for Due Diligence
Upon finding a property of interest to you, and successfully completing a Purchase and Sale Agreement, the first step towards closing is due diligence. Due diligence is a dedicated period of time identified in the Purchase and Sale Agreement (PSA) during which the buyer can examine the site and owner documents as they make the decision to buy. In order to efficiently use this time, make sure you have the correct documentation for your lender to fully underwrite the property.
Stay on Top of Operation Transitions
You’ve finally started closing on the perfect property for you–congratulations! Amid the excitement, make sure you pay attention to what needs to happen next, including the switching of payments for vendors and utilities, the installation or implementation of new branding or signage you will be using, and the management of any previous contracts and services that the seller has left to you. Additionally, ensure that you notify the tenants of the new ownership as early as you can, as a failure to do so can lead to confusion on their part.