Most Americans have more stuff than they know what to do with. As a result, they need extra space to store their stuff in. This basic need is the back-bone of the self-storage industry. But just because the demand is there doesn’t mean that making money filling that void is simple and guaranteed. The self-storage industry is more complicated than it looks, and there are many important issues to understand and address.
The Right Type of Facility
There have been a number of different types of self-storage facilities built over the last four decades. However, the profitable ones are among the first variety – they are called “Generation One” or “Generation Two”. The important component is that they have all rentable units located on the ground floor, and in a manner that a car can drive right up to the roll-up door. Why is this? Studies have found that self-storage tenants want to be able to drive right up to their self-storage unit door, roll it up, throw their stuff into it (or pull it out of the it), close the door and drive off. What’s not in demand are units that are located on a second floor or higher, or that you can only reach on foot. Nobody wants to have to take an elevator to their unit, or walk down a hallway with their stuff in tow. There never really was a demand for these type of facilities – it was more a fabrication by self-storage developers trying to rationalize building facilities on more expensive land, which required a greater number of units on that “footprint”.
Just as multi-story facilities have proven to be a flop, so have “climate controlled” units. It appears that the items that most Americans store are not valuable enough to require heating and air-conditioning. If you go to most facilities today, you will find the bulk of the “climate controlled” space vacant. At the worst end of this spectrum are the California invention of “wine storage” units. I was in a facility recently that had only 20% occupancy in “wine storage”. The cheap wine refrigerator available at Costo and other retailers has replaced this concept for most people. And don’t forget that “climate controlled” areas are extremely expensive to operate.
The Right Kind of Location
It is extremely important in self-storage to have excellent street frontage and visibility. The most successful self-storage facilities in the U.S. all share this common trait. This is because many Americans rent space in facilities that they drive by all the time and have awareness of – kind of a “point of purchase” decision. When you have a self-storage facility with poor visibility and an out-of-the-way location, there is no way that anyone will “think” to rent from you, or even find you if they wanted to.
Don’t forget that self-storage is extremely competitive in most markets. Given this fact, it is important that your facility have the correct basic gifts to compete. We all enjoy the stories of underdogs who go on to victory – like the one-handed baseball player – but it is far easier to win when you don’t have a disadvantage from day one.
The Right Kind of Market
Self-storage requires a high density of potential customers. Not everyone needs it, and there are competitors who are also asking for their business. There is a general rule that there should be a population of at least 50,000 people within a three mile radius of the facility. While this is only a guideline, the key thought is that you need a heavy population density for a facility to be successful.
As important as population density, is the density of self-storage space in the market. An over-built market will have low rents and excessive vacancy. The general rule of thumb is that there should not be more than 6 square feet of storage space for every person in that market. For example, a market of 100,000 people should not have more than 600,000 square feet of self-storage capacity.
Demographics are also a key part of a healthy self-storage market. Markets with household income of $50,000+ per year are best. Why? Because the more money you make, the more stuff you buy – and the more stuff you need to store!
The Right Kind of Price and Terms
An essential part of any self-storage acquisition – probably the most important of all – is the price and terms of the deal. Even the best self-storage facility will be a loser if you over-pay for it. You should never buy a self-storage facility at less than around a 10% cap rate (return on the total price). In addition, you should be able to finance the deal with around 20% down, so that your cash-on-cash return is in the mid-teens.
The best buys in self-storage facilities are from “moms & pops” – individuals who own the property free and clear and do not provide very sophisticated management. You can normally buy from these moms & pops at very attractive prices, and they can seller-finance the purchase, avoiding the entire banking application and approval cycle.
Conclusion
Making money investing in self-storage facilities is a very attainable goal. But you need to make sure that you follow some basic guidelines to ensure that your purchase will be a good one.
Monday, September 19, 2011
Monday, September 12, 2011
Investing in Mobile Homes
There are over 60,000,000 Americans with household incomes under $20,000 per year. To this giant market, a mobile home is the only form of detached housing that they will ever be able to afford. And, as a result, the demand for mobile homes has never been higher. But how can you take advantage of this opportunity?
The Basics of Affordable Housing
Before you can begin to invest in mobile homes, you must first understand your customer. For those families with household incomes under $20,000 per year using the government's own ratio of housing cost to income of 33% their housing budget is around $500 per month. At the same time, the average cost of an apartment in the U.S. in 2010 was around $1,030 per month. The point is that this market segment is extremely thankful to find something that they can afford, and is not very discriminating on the quality of the product. They are looking for basic shelter literally a roof over their head, a solid floor, running water and sewer, and heat in the winter. These customers are not expecting fine carpets, hardwood floors, upscale cabinetry. As a result, a successful investor in mobile homes will not focus on providing more than the basics. That is not to say that the home should not be clean and attractive. But the American obsession with upscale bathrooms and kitchens has no place in affordable housing.
And before you think that this customer is different than you and I, look around you. If you earn $10 per hour or less, you are in this segment. And that is a giant pool of jobs in America today. Almost everyone who works at the grocery store, McDonald's everywhere you go earns in this range. And as America's economy continues to decline, this number grows.
Why Mobile Homes Are The Answer to Affordable Housing
Mobile homes are the lowest cost form of detached housing to build. It costs less than $30 per square foot to build a mobile home, as opposed to around $100 for a stick-built home. And used homes often sell in the area of $10 to $15 per square foot. HUD has controlled the construction standards of mobile homes since the 1970s, with the goal of keeping costs at a minimum. If there's been a way to shave costs, it's been done.
The other key is the quality of life that a mobile home can provide the resident as compared to other inexpensive housing options. Unlike an apartment, the customer has nobody banging on their walls or ceiling. They have a yard. They can have a pet. Basically, mobile homes allow residents to have self-respect, and a neighborhood feel that supports a healthy lifestyle.
Why Mobile Homes Are Easy To Renovate
Mobile homes have some unusual attributes that other forms of housing do not share. One is that they have no permanent foundation. A mobile homes foundation is nothing more than a steel chassis, to which the wooden floor is attached. There are so slabs and no piers nothing expensive to settle or crack. Leveling a mobile home costs in the hundreds compared to a stick-built homes thousands. All utilities run in a common trough as opposed to the myriad of wires and pipes in a stick-built home. This makes it easy to locate and repair the water, sewer and electric pipes and lines.
One of the most unusual components of a mobile home is the fact that none of the walls are load-bearing. A mobile home is structurally similar to a shoe box the walls and roof are the only components needed to make it stand up. This gives you much more freedom in renovations, as virtually all internal walls are simply cosmetic.
An Unbelievable Amount of Demand
If the U.S. is in a recession, you would never know it if you run an ad for a mobile home for sale or rent. Even in a small market, you should receive 30 to 50 calls a week in response to your ad. At a mobile home park in Pueblo, Colorado recently, the number of calls exceeded 150 in one week. Why all the calls? Because there is a huge, unsatisfied demand for affordable housing. But that's not the whole story. The other cause of the giant demand is the poor quality of traditional apartment offerings. Have you seen an affordable housing apartment complex recently? Anyone who thinks that mobile home parks are unattractive has not visited apartments. The true crime center of most cities today are the lower-income apartment developments, with drug dealers standing out in front and prostitutes, gangs and drug addicts living inside. This is a horrible environment for any family or individual to live in, and many buyers and renters of mobile homes are fleeing from these terrible situations. In fact, most cities now view aging apartment complexes as their #1 problem- not trailer parks.
Healthy Numbers
Mobile homes are an attractive investment due to very attractive numbers. Essentially, it is easy to sell a mobile home for much more than you paid for it. A mobile home that you buy and renovate for $8,000 can be sold for $15,000 and a home that costs $12,000 can be sold for $30,000. You can buy them relatively cheaply because most people do not want to invest in this asset type. At the same time, there is a huge supply/demand gap, so you can price them high without much competition. The important fundamental and the one that needs to be your guide in every decision you make is to stick with the business model of affordable housing. You have to construct the monthly payment , including mobile home park lot rent, to not exceed around $500 per month. This is what the customer can afford. If you place the consumer in a position of having a bigger monthly obligation than they can afford as was just demonstrated in the sub-prime mortgage meltdown you will end up in endless defaults. This serves no one, as you are constantly having to clean and re-sell the home and your customers are denied the affordable housing, and long term benefit, that they are searching for.
Gaining Knowledge In This Niche
There are two websites that contain a large amount of information on this investment sector. One is www.Mobilehomeparkstore.com and the other is www.MHBay.com which together make up the largest portfolio of websites for the industry. There is also a new site that contains a vast assortment of articles and tips on investing in mobile homes at www.Mobilehomer.com .
Conclusion
Affordable housing is going to be one of the key investment sectors in real estate in the coming years. Get in now, on the ground floor. You can obtain spectacular returns and -- equally important -- provide nice housing to hard-working Americans who need it badly. This is a giant market, and one that you will be hearing a lot more about in the future.
The Basics of Affordable Housing
Before you can begin to invest in mobile homes, you must first understand your customer. For those families with household incomes under $20,000 per year using the government's own ratio of housing cost to income of 33% their housing budget is around $500 per month. At the same time, the average cost of an apartment in the U.S. in 2010 was around $1,030 per month. The point is that this market segment is extremely thankful to find something that they can afford, and is not very discriminating on the quality of the product. They are looking for basic shelter literally a roof over their head, a solid floor, running water and sewer, and heat in the winter. These customers are not expecting fine carpets, hardwood floors, upscale cabinetry. As a result, a successful investor in mobile homes will not focus on providing more than the basics. That is not to say that the home should not be clean and attractive. But the American obsession with upscale bathrooms and kitchens has no place in affordable housing.
And before you think that this customer is different than you and I, look around you. If you earn $10 per hour or less, you are in this segment. And that is a giant pool of jobs in America today. Almost everyone who works at the grocery store, McDonald's everywhere you go earns in this range. And as America's economy continues to decline, this number grows.
Why Mobile Homes Are The Answer to Affordable Housing
Mobile homes are the lowest cost form of detached housing to build. It costs less than $30 per square foot to build a mobile home, as opposed to around $100 for a stick-built home. And used homes often sell in the area of $10 to $15 per square foot. HUD has controlled the construction standards of mobile homes since the 1970s, with the goal of keeping costs at a minimum. If there's been a way to shave costs, it's been done.
The other key is the quality of life that a mobile home can provide the resident as compared to other inexpensive housing options. Unlike an apartment, the customer has nobody banging on their walls or ceiling. They have a yard. They can have a pet. Basically, mobile homes allow residents to have self-respect, and a neighborhood feel that supports a healthy lifestyle.
Why Mobile Homes Are Easy To Renovate
Mobile homes have some unusual attributes that other forms of housing do not share. One is that they have no permanent foundation. A mobile homes foundation is nothing more than a steel chassis, to which the wooden floor is attached. There are so slabs and no piers nothing expensive to settle or crack. Leveling a mobile home costs in the hundreds compared to a stick-built homes thousands. All utilities run in a common trough as opposed to the myriad of wires and pipes in a stick-built home. This makes it easy to locate and repair the water, sewer and electric pipes and lines.
One of the most unusual components of a mobile home is the fact that none of the walls are load-bearing. A mobile home is structurally similar to a shoe box the walls and roof are the only components needed to make it stand up. This gives you much more freedom in renovations, as virtually all internal walls are simply cosmetic.
An Unbelievable Amount of Demand
If the U.S. is in a recession, you would never know it if you run an ad for a mobile home for sale or rent. Even in a small market, you should receive 30 to 50 calls a week in response to your ad. At a mobile home park in Pueblo, Colorado recently, the number of calls exceeded 150 in one week. Why all the calls? Because there is a huge, unsatisfied demand for affordable housing. But that's not the whole story. The other cause of the giant demand is the poor quality of traditional apartment offerings. Have you seen an affordable housing apartment complex recently? Anyone who thinks that mobile home parks are unattractive has not visited apartments. The true crime center of most cities today are the lower-income apartment developments, with drug dealers standing out in front and prostitutes, gangs and drug addicts living inside. This is a horrible environment for any family or individual to live in, and many buyers and renters of mobile homes are fleeing from these terrible situations. In fact, most cities now view aging apartment complexes as their #1 problem- not trailer parks.
Healthy Numbers
Mobile homes are an attractive investment due to very attractive numbers. Essentially, it is easy to sell a mobile home for much more than you paid for it. A mobile home that you buy and renovate for $8,000 can be sold for $15,000 and a home that costs $12,000 can be sold for $30,000. You can buy them relatively cheaply because most people do not want to invest in this asset type. At the same time, there is a huge supply/demand gap, so you can price them high without much competition. The important fundamental and the one that needs to be your guide in every decision you make is to stick with the business model of affordable housing. You have to construct the monthly payment , including mobile home park lot rent, to not exceed around $500 per month. This is what the customer can afford. If you place the consumer in a position of having a bigger monthly obligation than they can afford as was just demonstrated in the sub-prime mortgage meltdown you will end up in endless defaults. This serves no one, as you are constantly having to clean and re-sell the home and your customers are denied the affordable housing, and long term benefit, that they are searching for.
Gaining Knowledge In This Niche
There are two websites that contain a large amount of information on this investment sector. One is www.Mobilehomeparkstore.com and the other is www.MHBay.com which together make up the largest portfolio of websites for the industry. There is also a new site that contains a vast assortment of articles and tips on investing in mobile homes at www.Mobilehomer.com .
Conclusion
Affordable housing is going to be one of the key investment sectors in real estate in the coming years. Get in now, on the ground floor. You can obtain spectacular returns and -- equally important -- provide nice housing to hard-working Americans who need it badly. This is a giant market, and one that you will be hearing a lot more about in the future.
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