Day 25: The Self Storage Drive-By Test: Exactly What to Look For Before Making an Offer

Wow. Okay. Welcome to day 25 of the Storage 100. We made it. I am Joe Downs with the Storage Mastermind. Yeah, it's hard to believe that we're actually here at day 25. We're about a quarter of the way through. All good. Today's not so much about finding deals, but rather about killing bad deals. So You got to learn to walk away from a deal faster than you would run toward it. The biggest mistake new investors make is actually falling in love with the deal or falling in love with the idea of owning a facility instead of being brutally honest about the asset itself. So today we're going to focus on the physical red flags, the things you can see, touch, and measure that will absolutely destroy your returns. These are the deal killers no amount of smart management or clever marketing can fix. If you ignore these physical flaws, you might be buying yourself a job, not an asset. So we're going to break down the 4 major categories of physical risk, starting with the most fundamental one. Can people even find you? The first physical red flag is all about access and visibility. If your facility is invisible, you have already lost the game. If a potential customer cannot see your facility from the road, your marketing budget just tripled overnight. Hidden facilities die a slow, painful death because convenience is the number one driver in this business. You want to perform what's called the U-Haul test right away. Can a 26-foot moving truck enter your property, turn around, and exit without a 10-point turn? If the answer is no, your customer base will be limited to people with small trailers and high tolerance for frustration. And then lastly, check the signage restrictions right away. If the If the city won't let you put up a tall pylon sign, you lose 50% of your crucial drive-by traffic. If they can't see you, they can't run from you. So even if they can't— if you know, I'm sorry, even if they can find you, uh, we need to talk about what happens when they get inside the gate. So once you pass the visibility test, you have to take a look at the layout and design flaws that will make your facility impossible to operate efficiently. This is where you're going to separate the cash cow from the money pit. You're— the multi-story facility with no elevator is a classic trap. Unless you're in a dense urban core, nobody's carrying a couch up 2 flights of stairs. The second floor units will sit either vacant or rent for pennies, crushing your effective rate per square foot. You also need to be ruthless about drive aisles and dead ends. Anything under 20 feet is a, is a major— 20 feet wide is a major problem because 2 cars can't pass each other, and that's going to lead to angry customers and damaged buildings. You got— you need to loop around access. You need— forcing customer— forcing a customer to back a trailer down a 200-foot dead end is a recipe for disaster. It's got to be able to loop around. These design flaws are permanent. You can't fix them with a fresh coat of paint. But there's an even bigger, more expensive risk lurking just beneath the surface we need to address next. The final category of physical red flags involves environmental and zoning risks. And these are the ones that can wipe out your entire investment overnight. You have to be paranoid about these. Never buy in a flood zone, period. Flood insurance kills cash cows, and one major event could put you out of business permanently. Avoid FEMA Zones A and V like the plague. Wetlands are another absolute deal killer. You can't build on them, you can't pave them, and the EPA will fine you into oblivion if you even try to touch them. It's dead land. And you're paying taxes for it. So if it's part of the deal and it makes sense, okay, but just know it. You gotta price it in. And then be terrified of the legal nonconforming zoning. This is a trap, or could be. It means the facility's grandfathered in, but if burns down more than 50%, for instance, you can't rebuild it. Often you can't rebuild it, I should say, as self-storage. You may or may not be able to add to it. Right? So you want to be careful with that. And then always get a Phase 1 environmental report and zoning verification letter. Don't skip this step. All right. So now that we've covered some of the environmental and zoning risks, let's get into the physical reality of the asset. This is where the money pit lives. The deferred maintenance that sellers hide and inexperienced buyers miss. You need to know the 3 big ticket items that that can wipe out your first year's profit. First, the roof. Bad roof in a large facility could be a $200,000 problem. Don't just look up, look up, look up inside the units for water stains and patching. If you see rust, you're buying a massive capital expenditure. Second, the asphalt and concrete. Seal coating is cheap, but potholes and alligator cracking mean the sub-base is failing. That's a full repave and it's expensive. And then third, The doors and gates. Test the springs on the doors if you can. If half of them are stiff, you're looking at a pretty huge replacement bill. The main gate motor is the most common failure point in the entire facility. You must identify these costs during due diligence and factor them into your offer. If you don't, you're buying a job, not an asset. All right, let's talk about, uh, how to separate the problems you can fix from the ones you can't that kill the deal. So Now that we talked about the money pit problems, now let's hit the critical pivotal point, separating the deal breaker from the opportunity. Most investors walk away from a property because it looks ugly, but ugliness is often just a symptom of bad management, and that is a massive profit opportunity. The true deal breakers are structural and permanent. You have to walk away from unfixable locations, properties in a flood zone, or sites with structural failure. If the zoning is nonconforming or if there is environmental contamination, you kill the deal immediately. These problems are expensive forever and they will bleed you dry. But here's the secret. The things that make a facility look terrible are often the cheapest to fix. Ugly paint, trash, a broken fence, below-market rents are not problems. They are profit levers. You can fix bad management and dirty facilities in under 90 days. Remember this mantra. Don't confuse a dirty facility with a bad facility. Dirt is cheap to clean. You want to buy the asset that everyone else is too scared or too lazy to fix. All right, now that you know what we're looking for, let's talk about the first steps you need to take now so that you can take advantage of the opportunities and steer clear of the risks and the hidden costs. So let's take some action and apply knowledge to your pipeline. You can't analyze every deal that comes across your desk, so you have to be be ruthless about filtering. First step tonight is a Google Earth flyover. Pull up the 5 target markets you identified yesterday and switch to satellite view. You are looking for physical red flags first that scream deal breaker. Look for access issues, dead ends, weird layouts, hidden entrances, looking for the unfixable location problems we just discussed. But be brutal in your assessment. If you find a physical deal breaker, kill it. Don't waste another minute on it, on underwriting any bad dirt. The goal here is to kill 2 deals a night. Get them off your list so you can focus your energy on the properties that actually have a chance to make you money. This is how you move from analysis paralysis to decisive action. Simple steps like this. All right. Again, can't believe we have now reached the end of day 25, and that puts us just about a quarter of the way through the Storage 100. Technically, it's 106 days of storage. But now, and you now have the tools to separate the profit from the poison. Plus, you now know the difference between a deal breaker and a massive opportunity. So if this session helped you dodge a bullet on a bad deal, hit that like button. Let me know you're in the game. You do not want to miss the next episode on financial red flags though. So make sure you subscribe and turn on notifications. And then finally, If you know a friend who's about to buy a money pit, you have to share this with them. Send them the link to this video. They will thank you later.