TODAY WE WILL TALK ABOUT SELF STORAGE AS A BUSINESS...

Last week we talked about the wonderful income tax advantages that we at SELF STORAGE CONSULTING & CONSTRUCTION, LLC can get for you when we build a self-storage facility for you. But what I am finding is that self-storage facilities are the best real estate investment, from a Net Operating Income standpoint, that there is.

Before I got into the self-storage arena, I did research on most, if not all, of the different real estate investments out there. I found that self-storage facilities gave you the best bang for your buck. They were inexpensive to build compared to multifamily housing or shopping centers, they required minimal management compared to all of the other real estate investments, and, opposite from what I thought, they will appreciate over time.

So, I started writing my articles every morning and, from those articles, I received telephone calls from all over the United States. I was surprised to find that just about all of the people who called me were telling me how good self-storage facilities are as a real estate investment. I was preaching to the choir.

Self-storage facilities give you a Net Operating Income way beyond a “normal” business. The Net Operating income can reach 70% and even 80% or even more. No other real estate investment gives you a Net Operating Income that high. No other business gives you a Net Income or Net Operating Income that high. I was a practicing Certified Public Accountant for over 50 years and I cannot count the number of financial statements and income tax returns I prepared for businesses of all types and I never saw any other businesses with a Net Income or Net Operating Income consistently this high.

A NNN lease situation has little in the way of expenses but you know your yield from the beginning and it is not going to change during the period of the lease. You are locked in which is good and bad. It is good because with a good corporate guarantor your rental income is almost certain. But it's never going to change from the lease agreement and you cannot get higher rents during the term of the lease.

What happens if you have a NNN lease situation on any fast-food restaurant, like a Mcdonald's, at a good location and you are making money. The lease term is 20 years with normal rent increases along the way. At the end of 5 years, they build a school down the block from your location. The value of that property just went sky high!!! BUT you are locked in for the next 15 years with reasonable rent. You are not getting the rent you deserve; you are basically losing money each and every day for the next 15 years.

In self-storage facilities if the circumstances change, if a large apartment complex gets built down the block, your demand will go up and, therefore, your rents and your Net Operating Income will go up as well. I love the flexibility that self-storage gives you. If you are running a business and either your costs go up or there is just an opportunity to raise the rents, you do it and change, increase, your Net Operating Income.

Another thing, a NNN lease is a PASSIVE activity but a self-storage facility generates ACTIVE income, but more importantly generates a huge Net Operating Loss after deducting Bonus Depreciation of up to $1 million in the first year of operations. And, that Net Operating Loss is the secret to getting the wonderful income tax benefits that we can get for you at SELF STORAGE CONSULTING & CONSTRUCTION, LLC.

Finally, you have a single-purpose structure at the end of that NNN lease. What are you going to do with it if the lessee doesn’t renew the lease? More so, what are you going to do if the lessee has to close up shop, so to speak, in the middle of the lease? The corporate guarantor will pay the rent but you might have an eyesore standing there and no one to rent it, then what? It happened in my neighborhood. One burger place was in a location, moved out during the middle of the lease and the landlord did eventually rent it out. But it took quite a while because what other burger place is going to lease a spot that couldn’t support another burger place?

The difference between having a single-purpose building with a self-storage facility is that people just don’t sell self-storage facilities as often as other structures. Self-storage facilities tend to stay in the family and move from one generation to another due to the wonderful income stream that it generates.

My name is Paul Levine and you can reach me at (818) 298 - 4000 after 10 AM Pacific Time 7 days a week or you can send an email to me at "[email protected]" or at “[email protected]” at any time and I will get back to you in a timely manner.