This is a fantastic time to be looking for self-storage. With interest rates dropping and federal incentives to boost SBA loans, there is money available for investors who want to purchase self-storage properties. The Fed just cut interest rates to between 0 and .25%.
Why would you want to purchase self-storage in this uncertain time? First, self-storage is very safe. Second, most self-storage owners are looking at a return in the 6% or higher range when managed correctly and purchased right. And the coronavirus should only increase the number of tenants looking for a place to put their belongings during the crisis. If you’re not sure that you have the right manager or you want to know how to purchase correctly, check out our website.
SBA loans are perfect for self-storage. The Small Business Administration is looking for businesses that are in the business to make a profit. I am sure that you don’t plan on purchasing your property to make a loss, so you fit the first criteria. Next, you must be planning on investing in the United States. This still allows you a large market for finding self-storage. Finally, you have to have skin in the game. The great thing about SBA loans is that unlike other commercial loans that require you to have at least 25% down, SBA only requires 10% down.
The way that SBA works is that they will loan you 40% of the purchase price of the property. That is a 25 year loan that is fixed for the entire life of the loan. The interest rates are usually very competitive if not lower than other commercial loans. The loans are base rate plus 2.75%. The Fed just cut interest rates to .25%. This means that the base rate will be around 3%.
Now I am sure you are asking, “If they only loan me 40% and I put down 10% where does the other 50% come from?” This is easy. The other 50% comes from a traditional commercial lender. They will be in first position and SBA will be in second position. This leaves you in great position! This allows you to use your cash to purchase more properties or larger investments.
The maximum that SBA will lend is $5 million. That allows you a lot of leeway in finding good storage unit investment opportunities. How do you find what is available in your area? You can begin by accessing websites like LoopNet, or commercial websites like CREXI.com or listselfstorage.com. These are just some of the ways that you can locate properties that are currently for sale. Do a Google search for self-storage and your city and see what comes up. Once you have found the properties, then it is time to evaluate them and see if this is something that will work for you. You don’t want to purchase a property that won’t give you a great return or that doesn’t have a great upside potential. Check out our next blog to find out how to evaluate properties.