What Should A Buyer Look For In A Self Storage Investment? Brandon, now that, let's say, someone's found this piece of property, and it's in a decent location and so forth, talk to us a little bit about due diligence. What would you be suggesting to look for, and walk us through a process that you go through?
Well, assuming that you found a property that you think might be an attractive acquisition opportunity, the main thing to look at is the income stream. What's the seller's income stream? And then more importantly, what is your income stream going to be as the buyer?
Because more often than not, the seller, certainly, when you get into smaller tertiary markets, oftentimes you have owners who are running the property themselves. If you're a real estate investor as opposed to a self-storage operator, you may not be running the property yourself. You may be employing somebody, you may be appointing a third party management company.
You have to take their income and expenses, and then adjust it and make those appropriate adjustments to understand what your net operating income is going to be. You want to take a look at third party management reserves for capital improvements, what a real estate tax is going to do on acquisition. So understanding the income stream is the primary thing.
So if you get a handle on and you have a comfort level with your income stream, then you have to take a look at what's the accessibility? How easy is it for a tenant to get to the property? How much visibility do they have on the street? How much drive-by traffic does that street have? What does the competitive marketplace look like from some a supply perspective? Is it over eight square feet per capita within a three mile radius? Is it under? What is the demographic profile? How are rents, where are rents compared to the competition? Do you have an opportunity to raise those rates when you take over the facility? What is the management like? Has the existing owner operated it to its full capacity or is there room to improve in terms of the daily management?
So, as brokers, we start with the income stream, we get a handle on the NOI, and then we take into consideration all the other ancillary factors. That includes the physical construction of the facility, does it need to be repaired, et cetera, et cetera. And after taking those items into consideration, we then come up with what we think would be a market price. That ultimately as brokers, what we're trying to do, is we represent the seller and we try to get them, ultimately, the most that the market could possibly bear.
We try to price our property within 95% of what that ultimate best case scenario is. We have historically been able to transact our deals within that 95% range of where we list our deals. But all those ancillary factors come into consideration because you can make a hundred, $500,000 on a property in middle of downtown Dallas, will go for a lot higher price than the same amount of money in a secondary market.
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