Back at the end of 2016, I was openly considering buying a storage business. I even wrote a bloggening asking you guys what you thought about it.
The business had the potential to generate $15,000 a year before any expenses, which consisted of eight different storage facilities (a garage, shed, and some older converted shipping containers), as well as spaces to store 15 RVs. The physical storage lockers were renting out at approximately $100 per month on average, while the RV spots cost $25 per month. There was potential to add more RV spots at least, which I planned to do.
The place wasn’t full when I was looking at it, with the property generating around $10,000 in annual income. It was for sale for $95,000, but word around town said it could be had for a much cheaper price.
I crunched the numbers and figured I’d like to pay a maximum of $70,000 or $75,000 for the place. So I did a little sniffing and made it known I’d be interested in the place at somewhere around $60,000. I was willing to pay a little more than $60k, of course, but I wanted to gauge interest.
It was nonexistent. The owner wasn’t interested in trying to make a deal.
In hindsight, this was the best possible outcome for me. I dodged a bullet.
The summer of 2017 was not a good one for that particular storage lot.
One of the things I liked about the property was it is near a main road, but it was tucked in behind some buildings in a private location. I thought this would help insulate the place from unwanted attention.
Unfortunately, some thieves also thought the same way. One night while the rest of the world slept they cut the padlock off the gate and took their time stealing a $40,000 trailer. The owners of said trailer discovered the unit was missing a few days later right before a weekend getaway.
Naturally, they were pretty pissed. The incident got plenty of attention on local media, and the victims themselves didn’t have nice things to say about that particular storage facility. It didn’t even have a camera! What a two bit operation!
Nothing nice ever comes from italics.
Storage has also become a sexy business to enter. There are two new RV-only storage facilities located in my small town, which opened within a few months of each other in 2017. Both are less than a kilometer from the facility I was looking at. The local UHaul dealer has added a few Sea Cans on the back of their property. And town council recently squashed a self-storage business on a piece of land located near downtown that needed new zoning.
These people have discovered that storage is a great way to get paid while speculating on the general direction of real estate. The two storage lots that opened in 2017 are both on a main road. The land will get sold at some point to a business that wants a great location. But in the meantime they’re undoubtedly taking away revenue from my potential acquisition. They don’t even need to advertise. Both places are filled with RVs using nothing more than word-of-mouth advertising and a ginormous sign strapped on the fence.
Ultimately the biggest problem with storage is there’s no moat. Any moron with a little land can compete with you. I realized that when looking, and insisted on a huge margin of safety. I’m glad I did.