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Making a Good Real Estate Deal: A Guide for Self-Storage Sellers

By Ben Vestal Comments
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The recent influx of buyers to the self-storage space has led to higher transaction volume. Owners who are unfamiliar with the sales process may have questions about procedures and tactics that will help them achieve maximum asset value. With this in mind, let’s examine some of the less obvious parts of a real estate deal, looking not only at the activity but the strategy behind it.

Pricing

In the world of real estate transactions, the market usually has a relatively narrow band of values. The reason is if prices were any higher, there wouldn’t be any buyers; and conversely, if prices were lower, there wouldn’t be any sellers.

Quality brokers are focused on a price buyers and sellers can agree on to conduct a deal. Without an agreement, there’s no transaction! Owners often think about only what price would make them ecstatically “happy” and not the price someone would actually pay. But overpricing is not harmless! Most qualified and capable buyers won’t consider an acquisition if the facility is overpriced, which greatly hinders the property’s value and liquidity.

If you’re a seller, use a qualified and experienced real estate broker to properly assess the value of your property. He’ll apply the income approach along with market-sales comparisons to arrive at an appropriate value that’ll allow you and the buyer to agree on the purchase price.

Marketing

When taking a self-storage property to market, it’s important to note that quality and risk are often very subjective. For example, a relatively low occupancy might indicate a poor performing facility or, alternatively, a great opportunity to increase occupancy and revenue. For this reason, it’s extremely important to market to a wide audience to find the buyer who has the most optimistic view of your asset. Always beware of the broker or colleague who says, “I have the right buyer for you. We don’t need to market the property.”

To maximize your value, look for a buyer who sees the glass as half full, not half empty. This will help you achieve the maximum sales price. The more qualified prospects who are exposed to your property, the better chance you have of maximizing your value.

Deal Structure

It’s important to understand that the structure of a deal can be as important as the purchase price. Too often, the parties focus only on the price and glaze over the structure without considering the financial implications of the non-financial aspects of the transaction.

There are two main deal structures that are typically used when buying or selling an entity or its assets. Specifically, these are an asset purchase (real estate contract) or an entity purchase (limited liability company or stock purchase). Below is an outline of some pros and cons associated with these two structures, although it’s important to note that I’m neither an accountant nor an attorney. Please seek tax and legal advice from your counsel when structuring a deal.

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