Self Storage Investing with Hunter Thompson
About Hunter Thompson
- Hunter is a full time investor and founder of Cash Flow Connections
- He has helped investors allocate capital to over 100 properties
- Hunters main business plan is to be as diverse as possible.
Nuts and Bolts
Hunter became serious about real estate investing after the economic crash in 2008 when he saw how precarious stock investing could be. At that point he looked for a more solid investment policy that would mitigate any risks from the market. Hunter’s investment policy is in self-storage units because now is not the rime for risky investments that rely on appreciation. As the market contracts and young people can’t afford rent they move back home and need somewhere to store their belongings. Self-storage is a recession proof investment because it becomes more sought after during a downturn. It’s not a discretionary asset, like a beach house, people really need extra storage solutions.
Hunter recommends finding a deal through brokers because they bring the deals to you. Alternatively you can find off-market deals through websites like lootnet.com. Finding a deal in self-storage will always be easier than in residential real estate because the prices aren’t big enough to attract the major players. The prices don’t get up into the right range, the maximum will only be up to $15 million, and Hunter has often found himself as the only offer on the deal. Another thing that makes self-storage different to residential is that price is worked out by price per square foot, rather than by door. Asset classes are still classed as A, B, C etc and an ideal CAP rate would be between 6.5 to 7. Investors are often scared away from self-storage because of the market and occupancy rates which can be as high as 95%, however Hunter urges people to not be scared of this because you can easily come in and raise rents.
When looking for a deal, try to find one where there is lots of opportunity to add value. Many self-storage units are not taken care of and mangers aren’t taking advantage of the value add possibilities. For example charging for insurance, climate control, marketing and sales, college relationships and uHaul. The most important and easiest to implement of these is the potential uHaul relationship. When people move they use rental trucks, so it’s possible to offer uHaul parking on site and then charge a commission. Hunter says this could raise your bottom line by approximately $500,000 by just making a phone call. When adding value you need to take into account the expense ratio of the property. This is slightly lower than a residential property because you don’t offer as much to the resident. For example for a flat the expense ration is 50% but for self-storage it’s between 40-45% Expenses aren’t charged back to the customer and these would include; security, pest control, landscaping, cameras, lights, truck maintenance, trash, water and sewer.
The best way to cover your expenses and raise capital quickly is by raising rent which you can do more aggressively than with residential properties. For example if a tenant is paying $150/month and you raise the rent by 6% to $159 people aren’t going to hire a van, pack up their things and drive down the road over $9 a month. However, the rent increases are justified by the value you have added to the unit. An approximate rent for a 10×10 unit is between $100-$135/month depending on the market, and a climate controlled unit would fetch more at $125-160/month. Rents can be raised as quickly as twice a year, especially when you have people on 30-day leases. When searching for a market, look for secondary or tertiary markets because the cash flow in places like California isn’t good enough. These secondary markets are the sorts of places that have reliable returns for self-storage but you wouldn’t visit on holiday!
Top investing tips
- Most Successful Habit – Having a good team behind you, when you’re all pushing it acts like a snowball effect. Surround yourself with people who are better educated and more motivated than you.
- Most Influential person – Jeremy Roll – mentoring and created FIBI networking group which accounted for 80% of deals Hunter has been involved in.
Contact – Get in touch through the website www.cashflowconnections.com