There’s never been a better time to consider buying a self-storage facility, especially as current owners wary of a recession cash out at lower valuations. Self Storage Capital provides funding to purchase facilities, as well as permanent capital after your construction loan or bridge loan matures. As a direct lender, we will provide a well-structured purchase or permanent loan, which might otherwise prove difficult to get from a conventional bank or SBA. Contact us to discuss how we can help you enter the industry and find success.
How much money can you make owning storage units?
With more than 49,000 self-storage facilities in the U.S., self-storage has grown into a $39.5 billion annual industry. About 10.6% of households rent self-storage and slightly more than 50% of self-storage facilities are owned by small operators.
It’s no secret that owning a self-storage facility is an appealing way to invest in real estate. It presents a relatively low risk for investors and the break-even point is between 40% and 60% occupancy. It’s one of the few start-up businesses with a better-than-average success rate. While about half of new business ventures fail within the first five years, according to Investopedia, more than 90% of self-storage facilities succeed. Moreover, the profit margin for self-storage is 11%, whereas businesses like restaurants are often in the 3% to 5% range, according to SpareFoot.com.
The earning potential that comes with owning storage units is more than one might think. With the average rent of $0.91 per square foot (SpareFoot, 2020), a 70,000 sq. ft. facility could generate nearly $160,000 annually in pre-tax cash flow, assuming 80% occupancy and 26% income after expenses and loans. (70,0000 sq. ft. x $0.91/sq. ft. = $63,700. $63,000 x 80% occupancy = $50,960/month net income x 12 months = $611,520 x 26% rental income = $158,995.20 pre-tax cash flow.)
These results are not guaranteed, but considering the potential for profitability, it’s easy to see why self-storage is an attractive investment.
INVESTMENT AMOUNT: $5,000,000 and up
INVESTMENT TERM: Generally 6 years
INVESTMENT: 90% investment to cost on a development property
INVESTMENT STRUCTURE: First mortgage, payable interest-only at 6.9% per annum
SSC also receives 49.9% interest in operating cash flows and cash flows from sale/refinancing after developer recovers equity plus 6.9% preferred equity return
Developer grants SSC right of first refusal (ROFR)
Professional management required (generally by publicly traded self-storage REIT)
AMORTIZATION: Interest only – no required principal payments before maturity
ORIGINATION FEE: Generally 1%
PREPAYMENT FEE: 3-2-1-0 after 3-year lockout
DUE DILIGENCE DEPOSIT: $20,000 payable upon issuance of term sheet
RECOURSE: Completion guarantee only. Non-recourse after CO with customary carve-outs
INTEREST RATE: 6.9% fixed
THE BEST CHOICE FOR SELF STORAGE PURCHASE AND PERMANENT FINANCING
Procured to purchase a stabilized facility or taken out after a construction or bridge loan, this is a fixed interest rate loan that has prepayment penalties if it is paid before it reaches maturity.
This type of permanent funding is repackaged into multiple loans then sold to investors who are then entitled to the borrower’s assets above other debt obligations in the capital stack.
This loan type is converted into a permanent loan after beginning as a construction loan. There is only one set of closing costs, and the borrower must show stability in repayment ability.