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26 Jun 2024

Self Storage: First Time Buyers and High Interest Rates


James McLean

Union Realtime

Impact of High Interest Rates on Purchasing Power in Self Storage

Let’s talk about the impact of high interest rates on purchasing power, especially in the context of self-storage. Here's a breakdown of some key points:

Interest Rates and Financing

When interest rates are high, the cost of borrowing money increases. This means that for any given loan amount, the monthly payments will be higher compared to a scenario with lower interest rates.

Buy Box

The term "buy box" refers to the set of criteria that a buyer uses to determine which properties they can afford and are willing to purchase. This includes factors like price, location, size, and features of the property.

Down Payments

The amount of down payment also affects the overall cost of the loan. A smaller down payment typically results in higher monthly payments and possibly higher interest rates, further limiting the buy box.

Smaller Pool of Deals

Because higher interest rates make financing more expensive, fewer properties meet the criteria for affordability and profitability. This reduces the number of viable deals for buyers.

Negotiation Opportunities

There is a growing trend of increased flexibility and openness from sellers which could create opportunities for buyers to negotiate better terms. This could include purchase prices that include seller financing or the seller agreeing to additional concessions like future repairs or improvements.

Strategies to Increase Your Chances of Securing a Deal

Shifting Geographic Flexibility

The traditional wisdom of buying a facility close to home is becoming less relevant. Instead of limiting your search to within two hours of your location, consider looking at properties in a wider geographical area. You need to be more flexible about the location of your investments. There are fewer storage facilities available for purchase compared to the past. This scarcity makes it essential to broaden your search area to find viable deals.

Ask the Radius+ Team how we can help to widen your search!

Make Multiple Offers

By submitting multiple offers simultaneously, you increase the likelihood of one being accepted. This could mean offering different terms or conditions to appeal to various sellers. Regularly make offers and engage with the market to find opportunities. Increase the amount of offers you make!

Direct Offers to Owners

Approach property owners directly with your offers. This can lead to off-market deals that aren’t being swamped with offers, positioning you to get a favorable purchase cap rate.

Utilize Brokers and Online Platforms

Platforms like Crexi and MLS are valuable for finding properties. Submit your offers through these platforms, ensuring that they are legally required to present your offers to the property owners. Understand that brokers are legally required to present offers to property owners. Use this to your advantage by making sure your offers get through.

July is “Put Your Broker to Work” month!!

Diversify Offer Types

Tailor your offers to different scenarios. For example, you might offer different down payments, financing terms, or contingencies to see what resonates with the seller. Think about forming a Syndicate, or ask about seller financing. Be Creative!!

Remote Management

With advances in technology, managing a facility remotely is more feasible. Utilize property management software, security systems, and local management companies to oversee operations from a distance, reducing your overhead expenses and increasing your profits.

Expanding your search to include different regions can uncover markets with less competition, potentially offering better deals and higher returns. Recognize that the market has evolved in 2024. Being adaptable and open to new strategies is key to succeeding in a landscape where the easy-to-find, local deals are no longer prevalent.

By implementing these strategies, you can maximize your chances of finding suitable deals even in a high-interest rate environment. The goal is to be proactive and persistent, increasing your buy box and thus your opportunities for successful acquisitions.

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