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SELF STORAGE INVESTING
How to Make Millions in the Hottest and Easiest Commercial Real Estate Investing Strategy WITHOUT Tenants and Toilets®
Scott Meyers, CSSM, The Nation's Leading Self Storage Trainer, will show you how to make millions in Commercial Real Estate, without all the Hassles of Tenants & Toilets! Entrepreneur Magazine listed Self Storage as the #1 Fastest Growing Business in the United States in 2008, and Scott will share with you how to build a $10,000 positive monthly cash flow in 1 year in the Hottest & Easiest Commercial Real Estate Investing Strategy on the Planet. You’ll learn:
Scott Meyers has been a real estate investor since 1993 and has become the nation’s leading Self Storage educator. He travels the country revealing why Self Storage has become the hottest sector in Commercial Real Estate over the past 30 years that virtually nobody has heard about. Practically every real estate investor and entrepreneur has uttered the words “I’ve always wondered about Self Storage, I’ve heard those things were cash cows.” It was only after becoming a penniless millionaire in the single family and apartment business, and a near bankruptcy experience managing several hundred tenants and toilets that Scott asked himself that very same question.
As a result of his research and 16 years experience, Scott will reveal the Top Ten Reasons to Invest in Self Storage NOW, and why he dumped all his single family houses and apartments and built a $10,700 positive monthly cash flow his first year in one of the best kept secrets in real estate: Self Storage!
You won’t want to miss this opportunity to change your life, and the lives of your entire family tree with his powerful message and strategies. Baby Boomers Creating Huge Demand for Self Storage Most U.S. Businesses including Self Storage owners continue to market to the powerful Baby Boomer generation, but generations X and Y should not be ignored. As the Baby Boomers near retirement, Generation X workers are establishing themselves in careers and starting families. In the meantime, Generation Y is graduating from college and entering the job market. However, the first group of Baby Boomers is edging closer to retirement with the first wave due in the next few years. Numbering almost 80 million, Baby Boomers make up about on-third of the country’s population. And although they have indicated that they will likely remain employed in either a full time or part time capacity after reaching retirement age, they continue to buy second homes and many other “toys” in anticipation of reducing the # of hours devoted to work. This generation has also accumulated a vast amount of wealth through equity in their homes, inheritances, and wise long-term investments. And as a result, they continue to spend more and more money on luxuries. Baby Boomer “toys” include Recreational Vehicles (RVs) and wine, both of which are candidates for specialized Storage. According to the Recreational Vehicle Industry Association (RVIA), 2008 is expected to be one of the best years for RV sales in nearly three decades, following several double digit sales increases the past 2 years. RV ownership is at a record high, totaling over seven million, a figure expected to increase by one million in the next 3 years. In addition to empty-nesters, RVs are also appealing to young families seeking an affordable means of vacationing. As demand for RVs increases, so will demand for places to store them, especially as Homeowners’ Associations become less tolerant of the storage of RVs in residential neighborhoods. Wine buying has also become increasingly more prevalent among Baby Boomers, many of whom are amassing large collections of wine as a hobby. While some store their bottles at home, an increasing number are also turning to self-storage facilities with areas designated to hold wine at the proper temperature. In addition, it is believed that Baby Boomers are passing their affection for wine on to their younger children, creating another source of demand for wine storage, both now and in the future. An aging population is generally predicted for the U.S. overall for the next few decades. From 2000 to 2050, the U.S. Census Bureau reports that the percentage of population within the 20 to 44 age bracket will decline from 37 percent to 31 percent as the share of 65 to 84 group rises from almost 11 percent to nearly 16 percent. The 45 to 64 group will remain steady near 22 percent, but the proportion of the population over the age of 84 is expected to rise from under two percent to about fie percent. The graying of the nation’s populace will call for new demands in storage, likely ease of use in accessing units and enhanced services, such as free pick-up and/or delivery of goods. In addition, regrettably, we will be losing a portion of our country’s boomers as they reach the end of their lives, which will trigger another need for storage. Many owners of Self Storage facilities are already seeing an increase in occupancy caused by the settling of estates when a loved one passes on. Once the house is sold, many of the goods and heirlooms are either kept by the family, or staged in a self storage facility until they can be sold or auctioned at another date. Some remain there for years because the heirs just can’t stand the thought of parting with their family’s belongings.
Like all other real estate investments, self storage shares the same attractive qualities as residential rentals, apartments, retail strip centers, office buildings, and industrial properties. Those include leverage (borrowed money), tax advantages, passive income, personal control (being your own boss), and appreciation. However, self storage offers a number of benefits that I feel make it such an attractive investment. Those include the following:
Become a Millionaire in Any Real Estate Market with Self Storage How to become a Millionaire in any Real Estate Market with Self Storage The Complete Guide to Finding, Evaluating, and Purchasing Self Storage Facilities™ Home Study System Here's a business concept that's creating a mini-revolution all across the country and giving thousands of people the ability to create their own wealth system right from their living room. The Self Storage business may seem familiar to you, but it's actually re-inventing itself in so many important and exciting ways, and is widely regarded as the most profitable and easily managed real estate investment in the country. The good news is that Self Storage is a $220 billion+ (market cap value) and $22.6 billion (annual revenues) industry in the United States that comprises 51,223 primary facilities with more than 2.2 billion rentable square feet! And of those 51,223 facilities, roughly 23,000 have been added in the past 7 years, proving that this is a product that is in high demand! In addition, a recent study by the National Self Storage Association showed that only 1 in 10 US Households are now renting 1 or more Self Storage Units, creating a high growth industry with only 10% penetration. The Future of Self Storage As we look to the future of self storage, it’s very clear that the future looks bright. There are a few trends afoot backed by solid industry data that justify my positive outlook on this high growth industry. These trends are as follows: Increasing Demand The U.S. Population is predicted to reach 400 million by the year 2050. All indicators show that Americans continue to be a highly mobile society with a high propensity to accumulate “stuff”. This means that as of the time of this publication, we stand to add 150 million potential customers to our prospect list who are searching for somewhere to store their belongings. High Tech Facilities As our customers become more selective in where to store their belongings, owners of older facilities will need to make necessary improvements to remain competitive. This will ultimately result in more sophisticated and higher tech facilities offering more user friendly layouts, larger offices, flexible unit mixes, kiosks, high security, and more climate control units. In addition, we can expect to see self storage investors competing for the premier parcels located in the high traffic retail areas of town. As a result, municipalities are beginning to require that these facilities have a retail component in order to increase the amount of sales tax generated and paid to those local governments. They are also requiring that the facilities have a certain “look and feel” that blend in with the surrounding businesses. Nicer fencing, or split block security walls, paved drives, certain architectural features, and an attractive landscape package will be mandatory and made part of the architectural permit prior to construction, and strictly monitored for compliance. More Products and Services As self storage moves closer to Main Street, we will begin to see an increase in the number of customized services available for its customers. We have already seen some partnerships being formed that provide complementary products and services. Of course the most common example is truck rental, but we are now seeing pack and ship businesses, EBAY® add-it stores, Kinko’s®, or co-locating with retail stores such as Starbucks® or Subway® on the ground floor with storage above in multi-story facilities. Focus on Customer Service As more and more people frequent our self storage facilities, they will begin to expect more from our facilities and the face behind the counter. These sophisticated customers are demanding excellence and consumer loyalty will quickly go out the door, along with their stuff, if they have a bad experience. Conversely, when customers are satisfied with the service they receive, they will stay, and hopefully will tell their friends about the good experience they have had. This provides an excellent opportunity for us to exceed their expectations, and provide a substantially better experience than our less educated, less professional competitors in our chosen markets. Industry Consolidation As the larger public companies and REIT’s are pressured by Wall Street to produce results, we will surely see more consolidation of the mid to large size companies. Those same mid to large companies can’t meet their growth deadlines by developing their own facilities from the ground up. The 3 years it takes to choose a plot of land, apply for zoning, permits, and then build and stabilize a property simply isn’t fast enough for them to meet their goals. Don’t misunderstand me however, the mid to large companies ARE still active developers, but their appetite for growth will fuel a surge in acquisitions and mergers for years to come. Increased Competition As all eyes are now on Self Storage, we are sure to see a number of new entrants into this facet of commercial real estate. Unfortunately, this will lead to overbuilding in some areas as many newer developers will ignore the feasibility criteria for developing a facility in a given market. Therefore, it will be imperative for owners and developers to work more efficiently to attract and retain customers in this new environment. Increase in Value In the future, the upward value trend in self storage will continue for a number of reasons: Predictably low interest rates will push cap rates low, and net larger profits for those who choose to sell. For that reason, self storage continues to rise in popularity as one of the commercial real estate assets of choice, and will ultimately attract more investors. There are still a number of individuals and investment firms that are stinging from the recent stock market corrections. These investors are now searching for a more stable investment that they can “touch and feel” as opposed to investing in a company that they have never heard of, run by people they have never met, in an industry they know nothing about. There is a lot of money chasing a few deals. Many investors have created a great deal of value in their existing portfolios, and they are selling off these properties and are looking for places to spend their 1031 tax deferred exchange dollars without paying taxes. Self storage has continued to be a great investment to exchange into and more and more investors are choosing to park their dollars here before their tax deferred status expires. As the saying goes, the only thing we know for sure is that things are going to change. I do subscribe to that line of thinking, but I also believe that self storage will remain a reasonably predictable, stable, low maintenance, high cash flow investment for professional investors for years to come. Getting Started Developing a facility means gathering and utilizing all the tools available in order to have a complete understanding of the dynamics of the self storage industry and the market in which you are going to build. Never have the issues of site selection and project feasibility been more critical to the self storage developer than right now. Today’s self storage industry is vastly different from 15 years ago when the “if you build it, they will come” attitude was the most prevalent view. What we now face all across the country is a competitive marketplace that in many areas is over built. That being said, there are still thousands of parcels that can be successfully developed for self storage. The question now becomes whether a developer has the discipline and persistence in his or her research to find the right one. The keys are to be sure to ask the right questions and then to be realistic in your search and expectations. And above all else, don’t compromise your research and force a site to work if it goes against your findings and the targets you have set. Of course the first question you need to ask yourself is why do you want to develop a self storage facility? I have seen many newcomers to the industry believe that just because the person at their local facility told them that they were full meant that there must be a huge demand in their market. Or another simplistic reason to get into this business in the past has been due to the fact that an investor “already owned the land, so it’ll be cheap to develop”. The investor who develops a facility based solely on the basis of one or even both of those premises may quickly become a “don’t wanter” in the near future. Greater care must be taken to find out how many facilities are in your target market and to find out what the average rental rates are. One must also become adept at determining land values and what zoning classification allows for self storage development in your community, and ultimately, who will manage the business once construction is completed. I’m also amazed at how many people have never attended an industry trade show, or don’t subscribe to the multiple industry trade publications when entering the industry. Some planning should also take place with regard to an exit strategy should you decide to sell or retire from the business. In summary, doing your homework is essential BEFORE jumping into the self storage business, and is absolutely critical when it comes to site selection and project feasibility.
FINANCING YOUR SELF STORAGE FACILITYMost types of investments won’t allow the use of high leverage using the securities themselves as collateral. This makes real estate investing somewhat unique in its use of financing. The use of leverage in real estate investments is a proven method to accelerate returns and create wealth. But one must be careful not to over-leverage. As we examine a few of the various types and sources of financing available for self storage facilities, I will also point out the dangers that can result from over-leverage and pitfalls of various financing structures. There is a wide array of financing vehicles available from an assortment of institutions and intermediaries. What was once a short order menu in the financing arena is now a smorgasbord of products that can be mixed and matched to accommodate almost any project. There are trillions of dollars in real estate mortgages issued each year in the United States alone. It has been estimated by the US Congressional Budget Office that approximately 76% of the nation’s wealth is in some form of real estate ownership or securities backed by real estate. That dwarfs the investment in all other industry sectors combined. In the past twenty five years, the financial industry has rolled out a myriad of mortgage products designed to make real estate ownership available to all segments of the population, and in recent years, it has repealed a few. FUNDING SOURCES Seller Financing A common and often times preferred source for financing self storage facilities is some form of seller-held financing. There are many advantages to using seller financing to fund a portion or perhaps 100% of your investment. Typically this includes no points, no fees, no appraisal, no survey, and no need to educate the lender about the facility. In addition, I can negotiate directly with the seller (financier) to structure a loan that is attractive enough to convince them to hold some or all of the financing. The most common use of this technique, and one I try to utilize on each and every one of my deals, is to get the seller to hold back a second mortgage to fill the gap between the sales price and the first lien being provided by the lender. Seller financing can be either short or long term, interest only or amortizing, with or without a balloon. In many cases, seller carry backs can be sold on the private market to create cash at closing to the seller if the structure and terms of the note are marketable with standard commercial terms. Private Lenders Wealthy individuals, or what many in the industry call “Country Club Money”, are often used as sources of financing, but may be hard to come by. Low interest rates as of late have caused many wealthy individuals to consider lending money for real estate simply because the returns are much higher than CDs or bonds and the debt is secured by a tangible asset, the facility. The total loan amount will vary based upon the individual and his or her wherewithal. Typically, interest rates can range from 6% to 20% depending on the deal, current market rates, timeframe, risk, amount, etc. There is no governmental or regulatory oversight of private lending so rates and terms are negotiable between the parties involved in the transaction. As with seller financing, the terms are generally more flexible than other lending sources and may not require extensive third party documentation and fees, and are relatively quick to close. Most private lenders prefer a short time frame to be paid back, typically one to three years, with the loan being amortized or interest-only with provisions for rate adjustments if interest rates begin to rise. Mortgage Bankers Mortgage Bankers are mentioned frequently throughout my home study system, “The Complete Guide to Finding, Evaluating, and Purchasing Self Storage Facilities”, as this is my preferred funding source. It is important though to remember that a mortgage banker is not synonymous with a mortgage broker. The simplest way to describe the difference is that a mortgage broker works with multiple banks, and the mortgage banker works solely for the bank in which they are employed. The benefit to a mortgage banker is that they typically possess years of experience and education required to represent a firm as a mortgage banker. In comparison, a mortgage broker can get started with no experience whatsoever. The mortgage banker may have outside relationships with additional sources of funds such as life insurance companies, pension funds, and private investors, and may bring them in to participate on a loan to complete the deal, but this is the exception not the norm. In practice, both the mortgage banker and the broker fill the same role to the borrower. They specialize in mortgages and only mortgages. The mortgage banker has a small advantage in being able to warehouse a loan, meaning they can close the loan by advancing the banks own funds, and wait for the security of the facility until a later date. This can make all the difference in funding a particular loan for your time sensitive deals. Once you have proven yourself to these banks, you will have access to some of the most flexible financing available anywhere. There are literally Dozens of ways to structure the financing on your Self Storage Facility that we could discuss, but I’ll just cut to the quick and present the way I have structured nearly all my deals, which is a combination of the 3 ways I just presented. Lenders Love Self Storage, and given the system I have created to find the real sweet deals, my banks have no problem approving an 80% LTV Loan. I will then combine that with the aid of either a seller Carrying Back the remaining 20%, thereby making 2 payments to him, or by partnering with some of the “Country Club Money” we discussed earlier in this article. However, I will caution: I DO NOT RECOMMEND OR APPROVE OF 100% FINANCING, OR THE “NO MONEY DOWN” DEALS THAT YOU HAVE SEEN ON TV, OR PREACHED BY OTHER GURUS! That being said, I have done several deals that have proven to be very successful projects which were purchased with no money down. The difference was that the deals were SO good, and the upside SO incredible, that I felt safe in leveraging them higher than my usual 80% threshold The investor that can put deals together by marrying a good loan with their community lender, structuring a 2nd loan from the seller, or from wealthy individuals can win in today’s turbulent credit markets. But remember, the deal must be bought well enough that the cash flow must support both loan payments and still provide a decent return to the investor. And trust me, they’re out there! I’ve made a fortune by following those simple guidelines, and you can too!
Why is Self Storage Suddenly So Hot!INVESTORS in self-storage stocks finally have some gains to stow away. The four real estate investment trusts that together own and operate about 12 percent of the facilities nationwide — most of the other properties are mom-and-pop operations — has soared about 31 percent, on average, this year through Thursday, after finishing 2007 with a nearly 25 percent loss. This year’s returns far surpass those of all other property REIT categories as well as the broader stock market. Equity REITs are up around 10 percent so far, on average, while the Standard & Poor’s 500-stock index is off about 5 percent. Why is self-storage suddenly in favor? Some investors believe that these dividend-paying companies will benefit from the housing crisis. They expect that the ranks of renters will swell as more people leave foreclosed homes or postpone buying their first homes because of tighter credit and falling values, and that those people will need repositories for their excess bric-a-brac. Industry analysts agree that the sector is likely to hold up well through these economic woes. “It is recession resistant,” said Michael Knott, a senior analyst at Green Street Advisors, the investment research firm. “More economic distress causes people to rent more, and, in fact, one of the storage companies said recently that Detroit was one of the best markets.” Indeed, Detroit had the highest foreclosure rate among the nation’s 100 largest metropolitan areas last year, with nearly 5 percent of its households in some stage of foreclosure, according to RealtyTrac.com, the online foreclosure listing service. RealtyTrac put the average nationwide rate at 1.03 percent as of Dec. 31, up from 0.58 percent at the end of 2006. Also high on the list were Las Vegas, Miami and Denver, along with several boom-and-bust cities in California. But housing is only part of the story in self-storage, analysts point out. “It correlates to transition,” said Michael J. Salinsky, a REIT analyst at RBC Capital Markets. Demand for storage space is often precipitated by life’s passages — marriage, divorce, retirement, enlistment in the military. In addition, use by small businesses has been growing, particularly by those that operate online. “Small businesses need off-site storage, for upsizing and downsizing,” Mr. Salinsky said, “and so do people working from their homes.” In the last decade, he said, self-storage revenues have grown 4.4 percent a year, on average, compared with average growth of 3 percent a year for most other commercial real estate sectors. This steady cash flow, which seems to transcend both good and bad economic times, is attractive to investors. During economic downturns, many investors look for such reliable income, engaging in a “flight to safety.” “This is a cash-flow-driven business that has a low break-even point — expenses are low even if occupancy rates are not high,” said R. Christian Sonne, the managing director of the self-storage industry group at Cushman & Wakefield, which provides various consulting services for the sector. A concrete-and-steel storage facility is typically far less expensive to build and to operate than, say, an office building or shopping center. There are, of course, the standard expenses associated with real estate, like utility costs, property taxes, insurance and payroll, but not too much more. And after “a huge building boom in the early 2000s,” Mr. Sonne said, the development pipeline has been slowing of late, which is also reflected in the newfound resilience of the self-storage sector. “The barriers to entry are becoming more difficult,” Mr. Sonne explained. For one thing, financing for new structures is harder to get, he said, while zoning is stricter in many communities, which seem to prefer property types that might generate more jobs and tax revenue. Still, plenty of storage space already exists. By the Self Storage Association’s estimate, there are around 51,500 primary facilities nationwide, as well as another 8,400 mini-storage places, or, as the association broke it down, almost seven square feet of rentable space for every person in the United States. A vast majority of this $220 billion industry, however, is made up of small businesses, making it the most fragmented among commercial property types. Perhaps because of that fragmentation, “this is probably one of the sectors that is least understood,” said David Harris, a REIT analyst at Lehman Brothers. Mr. Salinsky agreed, though he added that “in storage, you have to be a very dynamic operation to get the returns out of the property.” And that might include offering customer incentives like $1 rents for the first month and ancillary services like moving supplies and truck rentals. (A 10-by-10-foot space rents for less than $100 a month, on average, according to Mr. Sonne.)
Self Serve KiosksTo compete in today’s economic environment, many self-storage operators are turning to technology to lure customers to their facilities and provide superior service once they sign on the dotted line. Industry studies show the increasing usage of technology in facilities of all ages. Self-storage operators are employing the Internet for marketing, rental payments and online reservations. Facilities are benefiting from computer-management software, surveillance cameras accessible over the Internet, and digital video recorders. One emerging item in the technical arsenal is the self-serve kiosk. When looking for ways to increase profitability and enhance customer service, more storage owners are turning to kiosks, including many of the largest names in the industry such as U-Stor-It, Simply Self Storage and Extra Space Storage. Self-storage kiosks enable prospects to rent storage units 24 hours a day even if the manager is not available. A potential customer can take a virtual tour of the facility, select a unit, purchase a lock, pay for the unit, print out a rental agreement, and even sign up for tenant insurance. Existing tenants can use the kiosk——which interacts in real-time with a facility’s management software——–to make payments and update their accounts. Lease Up Faster Some operators are discovering that kiosks can unlock new revenue streams and even free financing funds. I currently use kiosks at 4 of my locations in Indiana, and they have helped me accelerate the lease up after we add more units. I also attribute the kiosk I installed last year with the rental of over 100 units out of over 2,000 at my facilities. As a result, one of my facilities achieved more than 92 percent occupancy after only one year of operation. The additional rentals taken in by the kiosk allowed occupancy to exceed or 85 percent stabilization occupancy level faster, thus accelerating the timetable for expansion. In most of our communities, we have a lot of people working until 5 p.m. or 5:30 in the evening, and they’ve been coming in after hours and renting a unit at 7 p.m. or 8 p.m. We have found that these self serve kiosks have added great value to our operation. Kiosks Collect Late Fees I also discovered another added bonus of the kiosk: the ability to always collect late-fee payments. We’re actually collecting more late fees than ever through the kiosk. It’s generating additional income and allows customers to come in and pay their late fee without having to face my managers, and they have immediate access to the facility. If someone wants to get into their unit after hours, they’re going to have to pay the late fees to get in. They don’t have to contact the manager or the owner asking to get a break. One of our facilities collected more than $700.00 in late fees during the first two months of the year, which was more than the amount collected all of last year. Better Customer Service While managers remain available to greet customers, answer questions and take payments, the kiosk frees up my staff to pursue revenue-generating activities. We have a lot of people come in and pay at the kiosk, wave “hi” to the manager and leave. That allows our manager to make marketing calls without being interrupted to collect a payment.: In the age of ATMs and self-service checkout at home improvement centers, some customers prefer the speed of using a kiosk to striking up a conversation with a living, breathing manager. Others take longer to warm up to a self-service machine. The kiosks also tie with another modern piece of equipment: the cell phone. Our managers take cell phones with them and a lot of times someone will call and they can direct them to the kiosk after hours. Should a customer need assistance with the kiosk, there is a lifeline to immediate help. There is a call button on the kiosk that goes directly to the manager or to our call center to assist them. Kiosks don’t take holidays For myself and many other self-storage operators, technology has allowed us to become more efficient and profitable in an increasingly competitive environment. While the high cost of having staff on duty forces most self-storage facilities to be closed on holidays and Sundays, owners with a kiosk are finding renting units on off-days is an easy way to attract customers when their competitors are closed. I have witnessed the real financial impact of installing kiosks at our facilities. Using the kiosk keeps our managers happy by giving them Sundays off, but still allows us to be open 24/7. We rented two units on Thanksgiving and one on Christmas. I was happy we could help these customers find storage when they needed it. Like myself, many owners and managers say the convenience factor their customers experience is truly significant since many need to take time off from work to stop by a facility and make their unit payments each month. However by adding a kiosk that takes payments, this enables them to stop by after hours, on weekends and holidays when the facility office is closed. As many in the self-storage industry have already discovered, kiosks reduce staffing costs while providing customers with increased confidence. Without paying costly overtime, kiosks enable facilities to keep their open sign lit permanently, even during holidays. Of course, increased occupancy rates and reduced staffing costs translate into an increase of the bottom line and facility valuation. As more industries move toward self-service, it’s worth considering the role of kiosk’s in self-storage. There is a good chance you might find they help lease-up your facility faster, increase profits and differentiate you facility from your competition. |