Self-storage is a booming $21 billion business nationwide. It has nearly doubled in size during the past decade, with one in 11 households renting space in nearly 50,000 U.S. facilities. No other business offers the return and the ease of ownership of self-storage.

People generally enter the business via two routes: they buy land and develop a new facility, or they buy an existing facility. With the difficulty in finding suitable land, obtaining the correct zoning and securing financing, purchasing an existing facility is often the easiest, quickest and least risky way to get started.

Once you find a site you want to purchase, how do you negotiate the contract? The following are pointers on what to include in the purchase agreement to protect your rights as a buyer.

Buyer Representation

Besides making sure you get good value for the purchase price, its important to have the right representation during contract negotiation. Typically, the seller is the only one represented by a real estate agent, and so the contract may lean in the sellers favor. To counter this advantage, consider engaging an experienced self-storage broker to represent your interests. Generally, there is no cost for this service, and it could save you from spending too much and experiencing potential problems.

Many purchase contracts prepared by a sellers realtor lack provisions designed to protect the buyer. For example, the buyer may assume a certain item is included in the purchase price, only to find out later it was omitted in the terms. If theres something you want out of a sale, put it in writing; thats the purpose of the contract.

Important Deal Points

Below is a partial list of deal points to negotiate into a purchase contract. Speaking from experience, the more comprehensive you make the agreement, the less likely youll have any surprises after the closing. First, the contract should state what the purchase price includes, such as:

The contract should state that the seller consents to a non-compete agreement. For example, the seller will not to be an owner, investor, employee or consultant in any self-storage business within in a 5-mile radius or 15-minute drive of the site.

The contract should set a date for due-diligence items to be delivered to the buyer. You may also want to request that any delivery days past the due date add to the due-diligence time period. The deliverables should include:

Your contract might include other important issues such as how the deposit is handled and financing contingency options. It might address whether the facility is being sold with room for expansion, the use of 1031 exchange as part of the acquisition, or whether youre buying the facility based on pro forma versus historical financials.

Representations and Warranties

In addition to essential deal points, consider what representations (reps) and warranties you will request from the seller. These are formal statements referring to past or present facts or matters essential to the contract. Your agreement may also provide that if the statements are wrong, you have certain remedies, such as the right to a partial return of the purchase price.

The idea is for you to identify the critical facts, circumstances and assumptions on which you rely when deciding to enter the contract. The reps and warranties section of the contract requires the seller to expressly state certain facts or matters and stand behind themor pay the price for breaching them.

Many state-approved commercial real estate forms contain a standard set of reps and warranties. But dont hesitate to add whatever you feel is necessary. Here are some items to consider:

Yellow Flag or a Deal-Breaker?

Some of the deal points, reps and warranties listed above are more important than others. Whether there are some deal-breakers in the list really depends on the overall contract terms, price and upside potential of the business.

Dont lose sight of what youre trying to accomplish, and dont shoot yourself in the foot trying to negotiate the best contract ever written. If a seller refuses to provide a due-diligence item or wont agree to one of the reps and warranties, it may indicate a problem. At the least, its a yellow flag.

For example, lets say the facility youre purchasing has revenue from outdoor boat/RV parking included in the net operating income. If you find out, after negotiating a purchase price, that the property is not zoned for this use, youre at risk of losing that revenue and may be over paying for the business. You may still want to complete the deal, but at a minimum, you have an opportunity to renegotiate the price to reflect the potential loss of revenue being generated from a non-approved use.

Each Acquisition Is Unique

Keep in mind the above list of contract considerations is not comprehensive. Even if you were able to include all of these points in your purchase agreement, it wouldnt guarantee a trouble-free transaction. Each acquisition is unique and will have its own set of issues and opportunities.

The bottom line is, as a buyer, you should have representation in the purchase of your storage business. The real estate broker who represents you should not only be qualified to help you evaluate the acquisition from a financial point of view, he should have the experience negotiate a purchase contract that could save you time and money. 

Bill Walton is a CPA, self-storage owner and real estate broker. He is the principal broker with S&W Commercial Realty LLC, which specializes in representing buyers and sellers in the purchase or sale of self-storage properties. S&W also handles real estate transactions in the office, shopping-center and multi-family property types. For more information, call 888.525.9081; e-mail [email protected]; visit www.sandwgroup.com.