Minimizing the Investment
Having enough land to expand is a must with most storage investments. The first phase can be left incomplete, saving money. This works particularly well for conversions, as a completion can be done very quickly and can correct errors made in unit mix. When doing conventional storage, land must be left available for additional buildings. Extra land should be a strong consideration from the initial search for the property. Many times larger tracts of land can be purchased for a more reasonable price.
One good idea is to pour the concrete slabs for additional phases during construction of the first phase. When occupancy reaches 60 percent, the construction process can begin again. It should only require about half the time to build the second phase as it did the first. It will also cost less than building the first phase because the building, doors and partitions are typically all that is required. Electricity will likely be needed for lighting, but most of the planning will involve first-phase costs. The second phase will take advantage of construction cost changes and building innovations.
When competition sees that you have or can have more units to rent shortly, they will think twice about moving into the area. The momentum of an existing property with more units to rent will make it harder for a new competitor to find renters.
One owner in northwest Florida has used this approach to keep significant competition from coming into his city. Yes, there is competition, but none of it has made a dent in his occupancy or profit.
Financing and Payments
Going to a bank with a loan request for a smaller amount in the first phase is better than asking for the whole project up front. Most banks will approve a loan with a statement that a second phase will be constructed when the occupancy reaches 65 percent.
At this level the project should have developed enough cash flow to pay the expenses and debt service. The lenders confidence in the project will be good, and the loan can be approved without the same amount of red tape required in the initial application.
Not only will phase two correct unit mix and construction problems, but it will also allow the owner to adjust to a new competitor in the area. If this new competitor has a different type of storage, which might be considered an improvement over what was built during phase one, it’s possible to make competitive adjustments.