Day 61: Self Storage Repair Reserves: How Much Should You Budget Per Unit?

All right. Welcome back to the Storage 100 series. This is day 61, and I am Joe Downs with the Storage Moguls Mastermind. And today we're talking about something often overlooked by self-storage investors— repair reserves, also known as deferred maintenance, or as I like to call it, the oh shit fund. Because here's the truth: things break. Roofs leak, asphalt cracks, gates stop working. And if you don't have money set aside for these things, you're going to be in a world of hurt. So today we're going to break down exactly how much you need to set aside, what it's for, and why ignoring it will destroy your deal. So let's get into it. So what exactly is a repair reserve? Well, it's not for your everyday operational costs. Let's put it that way. We're talking about money specifically set aside for those big unavoidable expenses. This is not for light bulbs or mowing. It's for things like the roof or asphalt or gates. When they break or leak or need repair. These are capital expenditures that can really hit your bottom line if you're not prepared. The industry standard is to budget about 10 to 20 cents per square foot per year. This might seem like a small amount, but it adds up and prevents huge surprises. So understanding this concept is crucial. So let's have a look at why the math really matters. If you've got a 30,000 square foot facility, And reserve that middle range there, $0.15 per square foot. That's $4,500 a year annually. That breaks down only $375 a month. If you don't factor this into your underwriting, your cash flow projections, well, they won't be accurate. You're essentially lying to yourself about the true profitability of your investment. Unless you love more cash flow and surprises. This reserve ensures you have the funds when major repairs inevitably come up. It's, it's, it's more about discipline because they will come up. So what are we talking about, though? What are the major expenses that typically occur? So over the years, I can tell you the reserves are needed for what I call the big 3. These are the 3 things that will eat your lunch if you're not ready. So number 1, roof, by far the most expensive thing to fix, period. New roof can cost you $50,000 to $150,000 depending on the size of your facility. That's not a repair. That's a capital event. Number 2, asphalt and driveways. This is the most neglected item. Everyone ignores it until it's too late. Then you're looking at a $100,000 repaving job instead of a $5,000 seal coat. Number 3, gates and automation. These are the most annoying. They break all the time. And when they break, your phone starts ringing because nobody can get in to get their stuff or worse, get out. If you underwrite these 3 things properly, you're going to sleep better at night. If you don't, you'll be scrambling for cash when the roof starts leaking or the gate breaks down. All right. So let's talk roofs for a minute, because not all roofs are created equal. In fact, in the Midwest, they're called roughs. No offense to you Midwesterners. In self-storage, metal roofs are king. They last 30 to 50 years if you take care of them. And taking care of them just means tightening screws and putting on a coating every 10, 15 years. That's cheap maintenance. Talking a couple thousand bucks. Shingle roofs, on the other hand, are disaster waiting to happen. They last 15 to 20 years if you're lucky. And when they go, you don't repair them, you replace them. That's $3 to $5 a square foot for full tear-off and replacement. On a $30,000 square foot facility, you're looking at $90,000 to $150,000. So here's my rule. If you're buying a facility with single— single— sorry, shingle roofs, double your repair reserve. Because you're going to need it depending on how long you're going to be in there. Metal roofs, often peace of mind. Shingle roofs could be financial ambush. Knowing the difference when you're underwriting is key. All right. So let's dive into the often overlooked but critical aspect of asphalt maintenance. It's not just about aesthetics. It's about protecting your investment and avoiding costly repairs. Ignoring your asphalt is like ignoring a small leak in your roof. It's only going to get worse and more expensive. So Seal coating every 3 to 5 years is your first line of defense. That's going to cost you about $0.15 a foot. This proactive step significantly extends the life of your asphalt. An overlay need is needed, I don't know, every 15 to 20 years, probably depends on your climate, where you are, what's going on. And that'll come in at about $1.50 per square foot. But if you neglect both, you're looking at full replacement, which can easily exceed $3 a square foot. So maintenance is always cheaper than replacement. And this holds true for asphalt. Think of it as preventative medicine for your property. Uh, following our discussion on asphalt, let's turn our attention now to another critical component of your self-storage facility— the gate. The gate is often the Achilles heel of self-storage facilities because it causes the most headaches and unexpected costs. Whether it's from a lightning strike, tenants accidentally hitting the gate, or the motor burning out, gate issues are inevitable. This isn't a matter of if, but when something will go wrong. That's why you need cash on hand specifically for gate repairs. Always budget around $2,000 to always have on hand for immediate gate-related emergencies. Having this reserve prevents operational disruptions and keeps your tenants happy. It's a small amount to set aside for such a vital piece of equipment. All right, building on the discussion of our unexpected repairs like gates, let's now talk about how to underwrite these capital expenditures. This underwriting rule of thumb helps you accurately budget for future maintenance and improvements. So for a Class A facility, new construction, everything's new. You can typically budget around $0.05 per square foot for CapEx for deferred maintenance. Class B, probably more in average condition, a little bit older, usually requiring $0.10 to $0.15 per square foot. And then for Class C or value-add properties, which are older and need more work and a lot of what we buy, you should allocate $0.20 to $0.25 Uh, cents per square foot. When in doubt, always at least use the 15 cents per square foot as a safe number. This conservative estimate ensures you'll be prepared for most eventualities, and it's better to over-budget slightly than to be caught off guard. And this actually leads us to a crucial closing thought about managing your cash flow and reserves, because after understanding how to underwrite, Let's consider a vital closing thought about your financial approach. Cash flow, you ready for this? Cash flow is vanity, but reserves are sanity. I know it's a catchy phrase, but it's not just a catchy phrase. It's a fundamental truth in real estate. Having strong cash flow is great, but without adequate reserves, you're always one major repair away from trouble. The roof doesn't care about your new boat. It cares about being repaired when it needs to be. Don't spend your CapEx money on personal luxuries or other investments. These funds are specifically for maintaining, improving your property. Protecting your CapEx expenses ensures the long-term health and value of your asset. And this disciplined approach is what will pay dividends down the road. Remember, folks, we are in the crockpot business, not the microwave business. It's a get rich slow and smart. All right. This wraps up day 61. I hope you have gained valuable insights into property. Maintenance and underwriting. So if you wouldn't mind, please like this video if you found these tips helpful for managing your self-storage investments, and subscribe to the, to the Storage Muggles Mastermind for more essential knowledge to grow your portfolio. Because we only just finished day 61, folks. We got 39 more to go by title, and really 45 because it's 106 days. And so you don't miss out on future drops, and most importantly, So you're notified when we go live, like for instance tomorrow night. Share this with someone who needs to hear about the importance of reserves and smart underwriting. They will definitely thank you later.