The only negative is the equity requirement is up, but then again, you are earning a great return on that equity, which is really the name of the game. And this comes with a nice advantage: If cap rates go back down, at the same income the facility will produce a $400,000 increase in value—a 57 percent return on your new larger equity.
Take a moment to think about what will happen if this isn’t the bottom and prices go down further. First, your returns will not change and all of the positive things mentioned before will remain true. Not a bad outcome for being partially wrong on the timing.
There is one possible serious downside to waiting too long to see if prices go down further. Think for a minute about the potential of inflation going up and the Federal Reserve aggressively raising interest rates in earnest, or the banks really tightening up on lending and rates. Take it from a guy who had a construction loan ticking off at 19 percent in 1983: You won’t like it at the bottom.
One last item: Very few people who own self-storage do sell because of changes in the market. They usually sell for personal reasons, such as retirement, relocation, illness, divorce, etc. This means many fine performing properties could be on the market at any given time.
Don’t let this unique time in the real estate market pass you by. Be sure to do your homework and consult a self-storage expert to make sure the opportunity is right for you!
Michael L. McCune is president of the Argus Self Storage Sales Network, a self-storage real estate brokerage and development company based in Denver. Argus also operates www.selfstorage.com, a marketing medium for owners in the industry. For more information, call 800.55.STORE.