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Avoiding REITs

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  • Avoiding REITs

    Hello SST community! I'm a new self storage investor and am working on market due diligence. For my first purchase I'm hoping to avoid markets with REITs and am curious if anyone knows if there's a market characteristic (e.g. population size) below which REITs won't consider investing because it's too small for them? Thanks for helping!

  • #2
    Just like you said. They typically set up shop in higher populated areas for business. The smaller markets are the safest if you are trying to stay away from them.

    Welcome to the forum from Oregon.
    "Never let the inmates run the asylum!"

    "Honk if you love Jesus, text if you want to meet him"

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    • #3
      Thank you for the warm welcome!

      Any insight on if there's a specific population size cutoff (e.g. 80,000 people) they don't generally go below?

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      • #4
        I can't tell you that but there are some sharp people here that will chime in. I am mainly here to stir the pot. Ask Amy, the main moderator, she will tell you. I am proud of the grey streaks in her hair I have given her. I think she wears them as a badge of honor but she will never admit that.

        Maybe after a couple drinks she might though!
        "Never let the inmates run the asylum!"

        "Honk if you love Jesus, text if you want to meet him"

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        • #5
          Brettbyron
          Lets understand their "normal" business model first:
          a. Onsite management
          b. Climate controlled, which is cheaper if you build multi level versus single. Also because the land is more expensive in larger cities.
          c. Now lets work back wards. Lets say a location for them has to be at least 350 units to make it worth it.
          d. I use a ratio of 6 units per 100 population, not houses.
          e. Minimum 350 units at 6 per 100 people = 350/6x100= 5,800 people. That assumes no one has built there already.
          f. Problem with a town of 5,800 people is that market does not want or need controlled climate at those prices. In a large city they are forced their because the land is to expensive to build one story drive up. So even though the math says 5,800 minimum size that isn't correct.
          g. Now at what price does the land become so high, that: 1. You are forced to build multi story (not $50,000 per acre, because I'm happy to build drive up at that price. $100,000 per acre, I would still build drive up.) Lets leave it at $100,000 per acre city property.; 2. Customer base has to be willing to pay around 10x10 $110; 10 x15 $140 per unit. The city has to be large enough to where they can't drive easily beyond 1 to 2 miles to get to drive up storage. To me that is a town of around 100,000 people.
          h. There is your answer. Look for towns of less than 100,000 people which is a market for 6,000 units. And Commercial/Industrial land prices of $100,000 or less for 2 acres or more.

          Now lets test that approach:
          1. Go to sparefoot and pull up a town of 100,000 to 50,000; don't worry about below, they won't get to 25,000 people towns. See which large National or Regional REITS are there. Sort by Distance. Storage 5 miles away is not your competition.
          2. Do the same thing using Google search for self storage in that town. Look by distance also.

          Keep your info on a spreadsheet and come back with the results. Don't be a Ghost. You can xxxx out the city names.
          Look for large locals. Same impact as REITS in a smaller city/town. Also just because there is not a REIT there, there could be to many local locations. I love REITS, can beat them on price, convenience (drive up versus elevator), "larger" size offering, different product (climate versus non-climate) and location. Don't play their business model.

          But as many have said on this forum, know your numbers. It's about you, not them.

          "Start small and Make Your Big Mistakes Early"

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          • #6
            I think you may be overthinking it. I'm in a rural area and the competition is just as fierce here as it is in any major metro area. I think the mom and pop operators are some of the best, if not the best operators in the business. I was once told the biggest competitor you face is yourself every day. I just gave my secret sauce out to the world.

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