This is the real deal. Like literally, an actual deal.
You gotta be able to look at a pro-forma. It's like weight lifting. I want you to do 3 sets of 2 pro-formas. Every week for the next 8 weeks.
Ben (co-founder of InvestingStorage) and I had 5 visits lined up for one day. We were looking at self-storage facilities around Little Rock, Arkansas. During this trip Ben and I got 2 deals under contract. One was a new build in Indiana (which we solidified over the phone while driving) and the other was a value-add facility in Searcy, Arkansas. We are a small two-man team and didn't want to overtax our resources by taking on two new projects at once. As such, we decided to wholesale the thing. This video was used in the marketing of the wholesale deal but it's also the perfect way to understand the way we look at pro-formas. We thought this was an awesome little deal with plenty of value-add potential!
The Breakdown of the Deal
In Total I made 4 videos on this deal that helped us demonstrate it's value add potential. We listed the videos and a brief description of the facility on Facebook and The Storage Rebellion website.
The videos are as follows:
I would encourage you to watch all the videos. The goal was to break things up and not just give a big info dump - an hour long presentation that you gotta sit through. This is good for you but was also used during the wholesale of the deal, on average, viewers watched about 60% of each video. That's huge. It means that a significant percentage of folks interested in the storage facility ACTUALLY watched the videos. Remember, these are marketing as well!
The Pro-Forma Outline
This is what every one of our pro-formas is based off of. Each one of these categories leads up to the final tab - "financial projections".
Self Storage Ultra Quick Reference
The Ultra Quick tab gives the view a very high level understanding of the deal. Here we see the pro-forma expenses, suggested purchase price and estimated annual revenue. This is the first thing anyone is going to look at. Maybe you don't want to buy a facility that is under 5,000sqft or maybe you have a specific budget. It's nice for potential buyers to know the basics so they can quickly assess a deal. This is also how you got through many deals. Sometimes you know within seconds whether a self storage deal is right for you.
Self Storage Rehab Estimates
For this facility there were none. However many facilities will require extensive rehab. By letting the potential buyer know that this faiclity is "move in ready" it further increases the appeal. This is also where we would include any potential expansion cost estimates as well.
Self Storage Supply/Demand
Note for this facility, the area seems to be "oversupplied". However, to quote the great Copper Storage Group A widely accepted methodology for calculating demand in a market is to examine the amount of storage square footage in the market per capita. The reader is cautioned that the square-foot-per-capita analysis lacks some credibility. A benchmark that reflects saturation or demand levels has not been established for any U.S. market. Sufficient data is not available to determine what the threshold for demand may be.
Furthermore, making use of the Self-Storage Almanac metro guides and top markets is problematic because of their methodology in determining the supply. What the Almanac has done is to apply an average size facility of 39,668 square feet and multiply the number of facilities in a market (presumably from the phone book) times 39,668. That is how they calculated the number of square feet in a market.
The analysis is only as good as the analyst’s confidence that the average size of stores (facilities) is the same in every market in the U.S., and that the average size is 39,668. It is also important to note that this methodology makes no distinction between demand for climate controlled and non-climate controlled storage space. This distinction is a critical factor in the evaluation of demand for the subject property. Other important demand drivers ignored by this methodology include per capita income levels and market rental rates."
Given this, we included a brief description of the competition during this part of the presentation. We believe that the facility should be able to lease up quickly given the lack of quality marketing within the competition in the area.
Self Storage Unit Mix
Unit mix gives you the break down of the units as well as the Gross Potential Income (GPI). This is the maximum amount that a self storage facility can make. We also included our sources for the pricing. Some sellers will "stretch" pricing beyond the market average. Which is a reasonable tactic assuming the buyer is a savvy marketer - indeed it is better to be the price setter and not at the bottom of the market. However, for your sales videos, we always use the exact market average and then send a version of the proforma that the buyer can play with themselves. In this way, we establish transparency and trust - showing that we arn't trying to "stretch" the numbers .
Self Storage Expenses
Here we give a break down of the potential expenses. We were clear to note that the current owner actual had LOWER expenses than we were projecting. Again, trying to be transparent in our proforma that if you want to run the facility remotely, you are going to have to do spend more on management software etc. We believed that this facility was a perfect fit for a "first timer" - someone who wanted to get into the self storage arena for the first time. In fitting with that, we also included a video describing the "Storage.co" management software as part of our recommendations on how this facility could be ran. We used the Stora.co price to estimate the management software aspect of the expenses.
The Self Storage Pro-Forma Financial Projection
Obviously, this is the most important part of the presentation and I would encourage you to simply watch the video. In summary though, this is where we put everything together. The expenses, revenue, resultant net-income and finally the cash flow after debt service. We also include several "exit strategy" calculations which allow the potential buyer to see many aspects of the deal including the estimated value after each year, the estimated refi amount, the cash out during a potential 70% refi and the total cash in the deal after each year (based on cash flow and refi).