Today’s development and financing of relocatable storage have come a long way. In this article, we get some insight from Terry Campbell of Live Oak Bank about what’s changed over the years in the self-storage industry. Relocatable units have proven their value and earned their place in the industry. There are many options for financing these types of storage units. As both a lender and an owning partner of six storage facilities, Terry has helped people see things in their potential acquisition or new building that they may not have seen themselves. This insider information will save them time and money.
Over the course of Terry’s 26-year career in the self-storage industry, he has witnessed many changes and plenty of progress. When he first got into the business, everything was single-story, non-climate-controlled storage. The facilities were not huge: back then people considered a 40,000 square foot facility a whopper. As time went on, he started seeing bigger projects, and climate-controlled units were becoming the next “big thing.” Then came more than one-story, bi-level built into a hill, and two-story facilities. After that came the elaborate multi-story buildings that we see today. Now, we’re watching relocatable storage opportunities develop.
As an investor in self-storage, Terry recognizes the many advantages of relocatable self-storage. These types of units are known as “relocatable,” “moveable,” or “portable,” because they move about a storage site as needed. These convenient units fit in areas where permanent structures cannot. For example, you place them in areas such as easements, right-of-way’s, setbacks, and along fence lines. Another benefit with relocatable units is how easy they are to build. Delivered right to your facility and assembled in about 20 minutes, relocatable storage is an ideal way to quickly add units to your facility. You can’t do that as easily with a permanent structure! Additionally, you can often avoid permitting issues and delays that have become standard with a stick-built facility.
It’s practical to put relocatable units anywhere on your site — not only in those hard-to-reach or tricky places. You could use them as the primary storage units for the business. In fact, many facilities place relocatable units on their site and assemble them to look like a permanent storage building. Over time, it’s easy to add more units to expand your site. There are also tax advantages with using relocatable units. You can write them off your taxes in five to seven years as equipment or personal property. And there can also be some cost-segregation advantages. It’s possible to write it all off even faster, which is helpful while you lease up. Plus, there are many options for financing relocatable units.
Today’s development and financing options for relocatable storage are exciting! Here are some of the different ways to approach a loan for relocatable units.
SBA Loans — SBA 7(a) loans are the most common loan offered at Live Oak Bank. There are many advantages, including as little as 10 percent equity required to get started. This can help you conserve your cash for unexpected surprises or other opportunities that may arise. Another big benefit of this loan is there are no financial covenants, except that you pay your bill each month. For this type of product, the loan term is 15 years. If you are financing land as well, and the land is more than 50 percent of the cost of the project, then it could possibly be 25 years. There is a prepayment penalty of three years, although you can prepay up to 25 percent per year without penalty. The units themselves will be collateral. If the units are new, there is a 75 percent collateral requirement. If the units are not new, it drops to 50 percent. The SBA loan program is beneficial for the reasons mentioned, but banks sometimes have minimum loan amounts. Be sure and check with your lender to see if your business needs align with what they can offer.
Commercial Loans — These loans require a good bit of equity from the buyer and will have a short term of years to repay the loan. Most likely, commercial loans include loan covenants and require your business banking accounts to remain with that same lender, in-house.
Leasing — Occasionally, leasing companies will buy the product, lease it to you, and at the end of the lease offer it for purchase at a lower amount. Here’s an example of how it works: If you were buying $100,000 worth of relocatable units, the collateral value would be $75,000. So, let’s say that you brought in 10 percent equity on this purchase. You would have brought in $10,000. Subtract that $10,000 from the $100,000 and that leaves $90,000. $90,000 minus $75,000 collateral requirements would leave you with $15,000 of collateral shortfall that you would need to come up with. You could use other real estate that you have equity in to cover that shortfall.
Credit Cards — Some people put the purchase on their credit card, depending on the size of the purchase. This is sometimes a good option, because you can scale the purchases and do a little at a time.
If you want to expand your facility or buy an existing facility that has some room on the site for more units, it’s a wise move to consider adding relocatable units. The cost, speed, and ease of adding these units make them an attractive and feasible way to expand your business.